The people who run the investment arm of the Canada Pension Plan are moving to a new, upscale office in downtown Toronto, the Star has learned, and the estimated 10-year cost of the move will likely be between $300 million and $430 million.
According to a quarterly office market report by Colliers Canada, between January and March of this year, CPP Investments signed a new lease at CIBC Square, comprised of a pair of luxurious new office towers that insiders say offer some of the most expensive office space available in the country.
The money to pay for the move will come out of returns on the reserve fund for the Canada Pension Plan, which more than 22 million Canadian workers must contribute to by law.
CPP Investments confirmed the move to 141 Bay St. — which is still being built — will take place within the next two to three years. It’s not moving because it requires more space, as the new office will be 10 per cent smaller than the current office, at 1 Queen St. E., which CPP Investments owns outright.
In an email to the Star, Michel Leduc, managing director of public affairs and communications at CPP Investments, said the organization is moving to ensure it can continue to attract top talent in a competitive market, and the CIBC Square tower is “the only major office tower in the downtown core in the development pipeline for 2025-2027 that meets our commercial objectives for cost, availability, fit with business needs and proximity to a major transit hub.”
Leduc added that CPP’s current office is “not ideally suited to long-term business needs” as “remaining in place would require improving our current workplace for efficiency and ways of working, in addition to introducing business disruptions through renovations.”
But some question why CPP Investments, a Crown corporation operating independently from the federal government, is tapping into the fund’s returns to lease a lavish office, boasting a 14,000-square-foot fitness centre, “hotel-inspired” concierge services and connected food court with a Michelin-featured bistro.
“I’d love for them to explain to the seniors who are barely getting by, or the small business owners who are paying higher payroll taxes, or the workers who see their paycheques shrinking, why their pension fund needs an expensive, shiny office building,” said Franco Terrazzano, federal director of the Canadian Taxpayers Federation.
“They owe taxpayers full transparency or as much transparency as possible.”
CPP Investments would not disclose the terms of the lease it signed, including the amount it’s paying, citing confidentiality. Eric Shaw, the leasing agent at CIBC Square, also declined to comment on the specifics of the deal.
However, a source familiar with Toronto’s office market estimates the total cost to lease 327,000 square feet at CIBC Square for 10 years, including expenses to build out the space, will fall between $297 million and $428 million, depending on the discount CPP Investments negotiates on the gross annual rent. (The Star agreed not to name the source as they could face professional repercussions for speaking to the media.)
The cost to finish the office space alone, including drywall, electrical and mechanical finishes, but excluding furniture, would be in the range of $68 million, based on an average Toronto cost of $207 per square foot, according to a fit-out cost guide published by real estate company Cushman & Wakefield.
The asking gross annual rent for the CIBC Square buildings is around $110 per square foot, according to the Star’s source, which would bring the 10-year rent to $360 million and the total cost of the move to $428 million. (The average gross rent for offices in Toronto in the second-quarter of 2024 was $50.56 per square foot, according to Cushman & Wakefield.)
CPP Investments did not dispute the Star’s calculations, which are based on industry averages and source insight, but Leduc said in an email that the Crown corporation was able to negotiate “exceptional terms below prevailing rates and other benefits.”
A source familiar with office-leasing transactions in downtown Toronto told the Star that it’s unlikely CPP Investments was able to negotiate a discount higher than 35 per cent off the gross annual rent. If it were able to negotiate such a discount, it would pay about $72 per square foot and the total 10-year cost of the move would amount to approximately $300 million.
Ben Haythornthwaite, an analyst at commercial real estate data firm CoStar, agrees the cost of leasing the CIBC Square space would fall in that range, suggesting that a rate of $75 per square foot would be “reasonable.”
When asked if it was able to negotiate a discount higher than 35 per cent, CPP Investments declined to comment.
CPP Investments has been under growing scrutiny from Canadians who contribute to the plan as its operating expenses have climbed to $1.6 billion in fiscal 2024 from $11 million in 2003. The fund’s net assets under management have also grown dramatically, to $632 billion in 2024 from $17 billion in 2003.
The fund deducts all operating expenses, including employee wages and office rent, from its net income, much like a mutual fund manager charges administrative fees to the returns on your mutual fund.
Concern over ballooning administrative costs rose in fiscal 2024, when CPP Investments underperformed its reference portfolio by almost 12 percentage points. Overall, the plan is well-funded thanks to years of healthy returns and successful investing.
As Canadians increasingly rely on the fund’s performance to support their retirement, “it is as important as ever that CPP Investments be able to both disclose and make publicly available, to a great extent, the nature of its investments and its transactions,” said Chris Roberts, national director of the social and economic policy department of the Canadian Labour Congress.
Speaking of the office move, Roberts added that “if these sorts of transactions are not visible to contributors, that will only provoke a perception — be it mistaken or not — that these decisions aren’t always well-justified.”
Stakeholders are also concerned about the future of the current CPP office at 1 Queen St. E., a “Class A” office building directly above the Queen subway station with quick access to the PATH network. (Class A buildings are considered more prestigious than Class B or Class C buildings, as they feature more modern amenities and finishes, as well as easy accessibility.)
CPP Investments is one of the largest owners of real estate in Canada with $50 billion in holdings, equivalent to eight per cent of assets under management. Recently, it’s been shedding some of those assets amid weaker demand for office and retail spaces.
In 2013, it bought the south-east block at the intersection of Yonge and Queen streets that contains 1 Queen St. E., along with the Confederation Life Building at 20 Richmond St. E. — a widely admired heritage building — for $220 million, property records show. But Leduc says the CPP Investments office has been at 1 Queen even longer, since the fund was founded 25 years ago.
Once the current office is vacated, the fund could choose to sell or lease the space.
But office leasing experts told the Star that CPP Investments may struggle to find a new tenant at a good rate for the space it will vacate, as the city is currently facing the highest office vacancy rate Toronto has seen in more than 30 years.
No decision has been made yet regarding the future of 1 Queen St. E., said Leduc.
“Since we are not moving for two to three years, various shifts will open up opportunities and we will take full advantage of the time to weigh our options,” he added.
Asked whether the amount budgeted for the move is excessive, the Department of Finance Canada, which oversees the Canada Pension Plan, deferred comment to CPP Investments, emphasizing that the Crown corporation operates at arm’s length from federal and provincial governments and is guided by an independent board of directors.
CPP Investments chair Dean Connor did not respond to the Star’s requests for comment.
Asked whether he thought the new CPP Investments office was justified, Claude Lamoureux, CEO of the Ontario Teachers’ Pension Plan from 1990 until 2007, was diplomatic.
“When you run the pension fund, the one thing that you can control is your expenses. You don’t control the returns you’re going to get,” he noted.
“You want to make sure that you have a good space — but at the same time, it doesn’t have to be the most lavish in the world.”
