Sun Life moving away from Bay Street, leading a shift from Toronto's financial district

Sun Life Financial Inc. is going to move out of the Toronto tower that has been its head office for 30 years, a sign of what many real estate experts say is the slow migration of the countrys biggest financial district.

The insurer told employees Monday that it plans to move its downtown work force of roughly 1,400 people to One York Street, a new building that will open in 2016 near the citys waterfront, south of the bustle of the traditional financial district.

Sun Life will take a 30-per-cent stake in the building, which is expected to cost about $375-million to build. The other partners are Menkes Developments Ltd. and the Healthcare of Ontario Pension Plan (HOOPP).

The move comes as a boom in office construction across Canada slowly reshapes the downtown cores of major cities.

Calgary and Vancouver are also seeing high amounts of construction in and around their business districts, posing a new challenge to older towers.

The building frenzy is occurring despite a demand for office space that softened in 2013. Vacancies are forecast to rise notably this year on a national level.

Nationally, there is a 22-million-square-foot development pipeline of new buildings under construction, representing about 4.5 per cent of existing inventory, Royal Bank of Canada analysts say, adding that they are almost certain that supply will exceed absorption over the next one or two years.

In Toronto, the traditional bank towers have long been considered the safest investment for commercial real estate owners because of their low vacancies and high rents. But thats starting to change as a number of splashy new office towers are built. Rental growth is likely to stall and some of the older Class A towers will likely have to make significant investments in building improvements, along with a reduction in their rents and significant increases in their leasing incentives, RBC real estate analysts wrote.

Royal Bank itself is moving more than 4,000 employees to a new building by the waterfront, which will become the headquarters for its Canadian banking business, starting later this year.

Torontos downtown office sector, which pulled through the financial crisis in decent shape, had its poorest results since 2003 in the fourth quarter of last year, according to brokerage Avison Young. The average availability rate downtown is 10.1 per cent, while King Street and Bay Street, traditionally the two most prestigious addresses for business in Toronto and arguably all of Canada have availability rates of around 11 and 12 per cent, it says.

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Sun Life moving away from Bay Street, leading a shift from Toronto's financial district