At this moment, somewhere in Canada, someone is sitting in a makeshift office chair in their home, staring into a laptop for another Zoom meeting. They’re wearing a carefully chosen buttoned shirt for the upper camera angle, while their legs dangle out of sight below, clad in pajamas. Maybe it’s you.
Welcome to the odd hybrid work world that has divided the office and home into a split personality that moves in and out of residential and commercial real estate across the country. Working from home, the office or a mix of both now demands a flexibility that’s both physical and psychological.
When we consider how work and health policies are impacting real estate, we’re really looking at a new way of working that’s consistently flexing to meet demand, supply and economic influences that are regional, national and global.
In other words, there’s no simple formula for calculating what to expect ahead.
Uncertainty is the primary mood in real estate. We’re in new territory with the pandemic and the ground is constantly shifting beneath our feet. That said, we can consider what analysts and REALTORS® in the field are seeing to try and determine how to best move forward.
Demand for more space in homes is here to stay
REALTOR® and broker Janice Fox, broker of record with Hazelton Real Estate Inc. in Toronto, has seen trends come and go over her 30 years of experience in the industry, but she acknowledges the pandemic is having a profound impact on how people are considering how to reconfigure their homes, whether condos or houses, as well as commercial office space.
“People are talking about working from home more than ever before, and we know it’s a COVID issue, but what’s really interesting is how it splits up,” she says.
Some of Fox’s clients who say they now need office space in their home are preferring a separate office space that is a room dedicated to work. Instead of an additional bedroom that might be needed, now it’s an office, or a hybrid of both. This preference for the way they work applies to the home they already own, as well as the new home they might consider purchasing, says Fox.
On the other hand, some of Fox’s clients are discovering they’re fine to work at the kitchen counter on their laptop and couldn’t care less about adding new or more space, she says.
Of course, family circumstances vary, and those who have young children at home may lean in a different direction than an empty nester.
Regardless, Fox says she believes, post-pandemic, this trend of having more space in the home, whether it’s a separate room for a bedroom or home office or one that serves as both, is here to stay.
The shift among home buyers to seek out lower-priced options in rural communities outside of larger cities may reverse as some of those markets have also seen increased competition.
“It’s really depending on the client and their lifestyle,” says Fox, who herself prefers to work at the kitchen counter. “I’m finding that what they want is coming in all kinds of varieties, though there is definitely a demand for more space that is driven by COVID-19 and new office policies.”
When PricewaterhouseCoopers Canada tracked how Canadian employers and employees were feeling about work, it discovered only one in five employees wanted to go back to their workplace full-time. In fact, most favoured working remotely at least half the time. PwC also found in a U.S. survey that executives were considering consolidating office spaces in premier locations or opening more satellite locations.
So, while offices won’t be abandoned, we can expect they will look different in response to changes wrought by the pandemic, even after COVID-19 has receded.
“I am seeing a shift in priorities,” says Fox.
The people who work for big corporations are telling her they believe they’ll likely be mandated to go back to work in an office, even though for now they’re enjoying working from home.
“A lot of people are settling into their new routine nicely, where they don’t have to do a commute on transit or sit in traffic or do lunch with co-workers or see clients at the office or even get dressed for the office,” says Fox. “Considering all this, I don’t see them wanting to rush back to the office.”
On the opposite side of the spectrum, her clients who are business owners, responsible for office spaces, aren’t really downsizing, she says. Rather, they’re reconfiguring the spaces on leaseholds, so that everyone is arranged in a way that complies with health standards.
For the future of work in offices, we can consider tech behemoths such as Google, which is envisioning its own workspaces, called “work pods,” in a forward-looking concept that’s kind of Ikea meets Lego – everything is configurable and easily rearranged, including the walls.
Is the trend of back to office going to hold?
Mark Fieder, principal and president of commercial real estate services firm Avison Young Canada, says it’s important to look at each market individually when assessing return to office efforts.
“We know from Avison Young’s Vitality Index that each city is in a different position. To help get people back to offices, we need our ecosystem to return—which means progress from our larger occupiers, which have tremendous influence on the vitality of our downtowns.”
The trend of back to office is underway and confidence is building, he says.
“We don’t expect 100% of our ecosystem returning before year-end but we see evidence of vibrancy as we keep building a presence, especially in larger centres like Montreal and Toronto,” he says.
He notes three main factors contributing to the pace of return: government and health guidance; industry composition (for example, tech and banking have been quicker to go remote; construction and professional services have been quicker to return); and reliance on mass transit.
“We do however note confidence is building among our clients as larger numbers turn their eye toward a return to office,” he says.
Susan Thompson, Avison Young lead of Alberta insights, says the office as we previously knew it is changing.
“While we have certainly seen some companies downsize and move to a predominantly work from home model, we are also seeing companies expand to provide more space for social distancing and reconfigure their offices to better suit technology for virtual, collaboration spaces that serve a hybrid model,” she says.
It’s too early to tell where changes to companies’ office environments level out in terms of size, she says.
Every major office market in Canada saw an increase in office vacancy over the course of the pandemic. Toronto and Vancouver saw their downtown vacancy rates increase by around five percentage points between first-quarter 2020 and today, according to Thompson.
Edmonton, like Calgary, saw its downtown office vacancy increase by six percentage points. Montreal and Ottawa fared the best, with their downtown office vacancies increasing by three and one percentage points respectively.
Of note, Calgary is an office-based employment market, says Thompson. Calgary has almost five million square feet per 100,000 people, whereas the five other largest cities in Canada have between two and three million square feet of office space per 100,000 people, she says. Accordingly, Calgary feels any impact to its office market on a much deeper level.
As of third-quarter 2021, Calgary’s downtown office vacancy sits at 30%. Thompson says much of the increase is coming from companies downsizing or closing, as well as excess space resulting from a high volume of merger and acquisition activity across the energy sector.
Commercial real estate to create communities and experiences
There’s a major trend growing with building owners to better create more complete communities and experiences around their buildings, so they can attract and retain tenants to their properties, says Thompson. For example: services (doctors, retail, food offerings, childcare, education, entertainment, fitness facilities) and technology-enabled buildings (high-speed internet, wiring, smart buildings).
Dovetailing with this investment by property owners is investments and programs being brought in by government to help induce change and growth. As an example, the City of Calgary approved the Greater Downtown Plan in April 2021, which seeks to revitalize the downtown core with funding for such things as redeveloping vacant office space.
“Another big change we’ve noticed, and this started well before the pandemic, is that the average office lease is getting smaller,” Thompson says. “Calgary used to be a large-tenant market, with a lot of multi-floor, 100,000-square-foot and up tenants, but now our average office lease is under 10,000 square feet.”
As a result, building owners are finding ways to better suit multiple tenants within a building or multi-tenant floors – everything from people movement through the building, to HVAC, security and amenities.
As the pandemic continues to push changes in real estate that may linger well into the future, the only thing that’s certain is likely continued uncertainty.