When you build a new office building, the typical strategy is to pre-lease a certain portion of it. That is, you sign leases with a tenant or a few tenants so that you know for sure that X% of the building will be occupied upon completion. It’s a way to manage risk. If you don’t do this, then you are said to be building the office building “on spec.” 

When you build a new condo building, the typical strategy is to pre-sell a certain portion of it. That is, you sell suites to purchasers based on plan drawings, certain finishes, and a model suite intended to illustrate what that future suite will more or less look like. And the reason this is typical is because most construction lenders will require you to do that.

So when you see office buildings and condo buildings going up, there are usually already tenants and residents who plan to move in or investors who plan to rent out their suite and have generally transferred that risk away from the developer. 

Because really the only time that a purchaser or investor wouldn’t close on a condo suite (and walk away from their deposit) is when the market corrects so badly that it actually makes financial sense to do that. That happened in the U.S. in 2008-2009 in a number of markets.

But by contrast, when you’re building a rental apartment building you don’t have anything to pre-sell and your tenants (unlike office tenants) aren’t going to sign leases with you for some space that will be ready in 3 years. If you’re lucky, they might sign a lease with you for an apartment that will be ready in 3 months. This means that by default you are also building “on spec”.

Now rental apartments are often considered to be the safest real estate asset class and the least correlated with the macroeconomy. But as a developer and city builder, this dynamic is still something to keep in mind.

Last month it was announced that Amazon will be taking 127,000 square feet across 5 floors in a new office tower in Toronto’s emerging South Core neighborhood. The space will be used for about 800 employees and they’re expected to take occupancy this fall.

At the same time, I learned that Amazon will be joining Apple (positioned 6 floors below them in the same tower) and Cisco in South Core.

On top of all this, a friend of mine then tweeted out a list of major tenant re-locations here in the city. The data is from CBRE and the timeframe is from 2009 to 2014 (Q1).

The first thing I noticed when I looked at the data is that there’s a clear trend towards downtown. Perhaps that was the point of the study, but it’s still interesting nonetheless. 

From Google and Deloitte to eBay and Aol, every single tenant in the CBRE list is or will be moving downtown (or to the shoulders of downtown).

Here’s what that looks like from a regional scale (red marker is where they were; green marker is where they are going):

And here’s what it looks like zoomed in closer:

This, of course, is a trend that has been happening for years. But I still think it’s worthwhile repeating how clearcut it seems to be. 

Companies know that their greatest asset is human capital. And they have quickly realized that a lot of young smart people want to live and work in dense walkable communities. They’re simply moving to where people already want to be.

So here’s a question for the Architect This City community: On a scale of 1 to 10, how important is a company’s location when determining whether or not you’d like to work for them? Let’s talk about it in comment section below.