Don’t expect working from home to kill the corporate office
The world is seeing the largest work-from-home experiment in history. The list of major companies allowing employees to work from home, even after the pandemic, continues to grow to change with the future of work.
Companies like Shopify, Twitter, Spotify, Coinbase and Facebook announced that they will extend their work-from-home policies, or even allow workers to telecommute permanently. Given the choice to work at home in the ‘new normal’, it had many asking, “Is this the end of the office space?”
Experts in the commercial real estate space say it’s too early to sound the death knell on cubicle life.
“What we’re seeing in this current environment is kind of a mixed bag,” said Nick Dauphinee, executive managing director of occupier services in Canada at Colliers.
Dauphinee said some of his clients were questioning whether or not they needed the same amount of space they held pre-pandemic. However, other clients will continue to lease the same amount of space – or even increase their square footage as they expand business or require more space to enforce social distancing measures. “It’s very industry and company specific.”
Companies looking to expand their square footage to accommodate social distancing goes against the common strategy of fitting as many people into the smallest amount of space as possible to cut rental costs.
“There’s been a trend of densification over the last several years” Matt Olejnik, principal and sales representative for Avison Young, told Yahoo Finance Canada. “So instead of this densification trend, they’re thinking that maybe they need to take on more space per person just so that they can properly distance from each other.”
Office vacancies across Canada’s major cities had been historically low heading into this pandemic. According to CBRE market reports, the Toronto office vacancy rate for the first quarter of 2020 stood at 2 per cent. Downtown office rents in Toronto ran an average of $36.16 per square foot. Other cities with low availability include Vancouver (3.9 per cent) and Montreal (6.3 per cent). The firm stated that these record-low vacancies were pushing rent rates up.
Olejnik isn’t anticipating a massive shift in the long-run, as far as demand and office pricing go.
“We’re going into this with a strong market and I believe there’s still going to be demand for office space, which will keep the pricing where it is,” he said.
Last month, Statistics Canada reported that about 4.7 million Canadians who usually do not work from home did so between March 22 and 28. Research Co., a Vancouver-based survey company, reported in an online survey that 65 per cent of Canadians working from home hope to do so more, even after the COVID-19 pandemic passes. If Canadians still hold this sentiment after the country returns to normal, companies may need to adjust their office plans to fit a new reality.
Even if some people never return to the office, the industry doesn’t expect office demand to go away. Many tech companies have seen revenue surge during COVID-19. Dauphinee said these clients may move into these empty spaces if some companies pull back on office leasing.
“If there are pockets, they could quickly be absorbed by companies that are expanding.”
The work from home impact on retail
While the office space isn’t expected to see any dramatic shifts, the same can’t be said for downtown retailers that rely on the patronage of office workers, whether they are restaurants and cafes, or dry cleaning and alteration services.
“Retailers located at the base of office buildings or in [Toronto’s] PATH (Financial Core) – from the small independent coffee shop to the Cactus Clubs of the world - will absolutely be affected,” Brandon Gorman, the senior vice president of Jones Lang Lasalle, wrote in an e-mail to Yahoo Finance Canada.
“A huge percentage of their business was driven by the captive office audience directly above.”