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Shopify and other companies say they will keep workers at home permanently — are Toronto’s massive new office tower projects in trouble?

Shopify and other companies say they will keep workers at home permanently — are Toronto’s massive new office tower projects in trouble?
Business
Top-tier financial services and tech companies have made Toronto a hot draw for talented workers, stoking the city’s roaring economy and whittling the downtown office vacancy rate to a tight 2.8 per cent.

But what happens to Toronto’s teeming office towers if people stop going to work?

COVID-19’s influence on the way we work is being widely compared to the impact 9/11 had on how we travel.

Among the many uncertainties of life going forward is how the city’s office towers will be occupied. Could the move to home-based work hollow out Toronto’s core?

That’s unlikely, said Ray Wong, vice-president of data operations at Altus Group, who tracks commercial and industrial real estate. Organizations, however, will almost certainly be taking stock of their office requirements — how to reconfigure them and how much space they need, he said.

He is among the experts who caution that it is too early to determine how much of the current shift to home-based work will stick.

“After 9/11 nobody wanted to be in highrise buildings and nobody wanted to be downtown. At one point the rents were actually higher in the lower floors. Now you pay a premium to be higher,” he said.

James McKellar, a professor of real estate at the Schulich School of Business at York University, said there are changes underway that few would have predicted a couple of months ago. He cites reports of soaring bicycle sales in big U.S. cities where traffic congestion and the fear of transit are prompting commuters to seek alternative transportation.

While he doesn’t expect Zoom to replace face to face, McKellar said new buildings will put more emphasis on health, safety and wellness features.

“We may also see more low- to medium-rise mixed-use buildings with office and residential outside of the downtown core,” he said. That could be accelerated by large, mixed-use projects by pension funds that are coming on stream in the next decade in suburban locations such as Downsview and Mississauga.

Wong said there are two discussions already underway in most organizations.

Some are thinking about leveraging technology to reduce their office footprint by 50 per cent. Others are considering whether they will need more space for social distancing.

On Thursday Shopify became the latest tech giant to announce it plans to extend work-from-home provisions.

But most pandemic-stricken organizations, including Altus, are plotting ways to phase in safe, productive office environments against a backdrop of physical, psychological and economic fear.

“The key thing for the downtown will be how safe will it feel with respect to getting on the TTC or a GO train. That’s what the government and the private sector have to look at,” said Wong.

The Toronto region’s 6.6 per cent office vacancy rate, like most big Canadian centres, is tilted toward the core, where the 2.8 per cent vacancy rate compares to 9 per cent in the suburbs.

Even before the pandemic, Altus was expecting vacancies would increase based on employment trends and new office development.

The city has 124 million sq. ft. of office space and another 9 million sq. ft. expected in the next five years. Before the pandemic, demand was so high, 74 per cent of the new space had already been leased.

Wong said companies are also reconsidering the average amount of square footage being allotted to their employees. That number has been shrinking for the last 20 years with some tech companies in open-concept offices averaging only 80 to 90 sq. ft. per employee. Law firms with more private offices allot about 125 to 135 sq. ft.

“The last two years we’ve heard a lot more noise from companies that this average is too tight — it’s hard for our employees to be able to focus with all the distractions around them,” said Wong.

He said employers evaluating their space requirements could also start giving more consideration to suburban locations that have been considered less appealing to younger workers, who place a premium on transit access and walkability. Given the last 10 weeks, those employees might also be reconsidering the suburbs.

“They live downtown and some of them are in 350 or 400 sq. ft. shared by two people. To be in self-isolation is a little bit challenging,” he said.

It is premature to call the COVID-19 work-from-home “experiment” a resounding success, said Oxford Properties Group vice-president of development Eric Plesman.

“We don’t know the long-term impact on mental health and employee engagement,” he said.

Plesman sees working from home as an evolution rather than a dramatic shift — one that will accelerate the trend to blending work with home life.

“Work has now pervaded our homes and employees are going to expect more flexibility from employers. The office will more rapidly evolve from the ‘production floor’ to a place focused on creating employee engagement, culture, creativity and building relationships and trust,” he said.

Plesman said Oxford remains committed to downtown development, and its plans to build a giant mixed-use project called Union Park near the Rogers Centre haven’t changed. Expected to break ground in 2023 at the earliest, Union Park includes 3.3 million sq. ft. of office space in two towers, 58 and 48 storeys.

Another major mixed-use development by RioCan and Allied, The Well at King St. West and Spadina Ave., will include 1.1 million sq. ft. of office space, according to the project website.

Technology allows work flexibility but it still has its frustrations, said Plesman.

“You can’t operate at the same level. You can’t interject, you can’t have a very cohesive conversation because you are forgetting to press the mute button. Your audio all of a sudden fails. The children are running their own streaming so all of a sudden your picture falls away,” he said.

Lisa Fulford-Roy, senior vice-president of client strategy at commercial real estate company CBRE, said she expects Toronto will absorb new office space based on pent-up demand and Canadian immigration policies that encourage the city’s growth.

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“If anything (new supply) might create a bit of room in the market for the short-term, but longer term, organizations are going to continue to grow their workforce,” said Fulford-Roy.

Meantime, she said, “Everybody’s learning what’s important to them in terms of how they could work from home in the future — the ideal conditions. They are learning what they would do in the office and why they miss the office so much.”

But don’t expect the return to work will immediately restore the social and collaborative functions of the office, said Fulford-Roy.

“When people return to work pre-vaccine, it’s going to be very mechanical. It’s not going to be highly co-operative. It is going to be very structured around safety,” she said.

“That experience isn’t what we are all wanting to get back to the office for.”

Checkerboarding, carpet sensors, hub and spoke workspaces: Welcome to the post-pandemic office of the future

Nobody knows what the office of the future looks like post-pandemic. But COVID-19 has already handed employers and workers 10 weeks in which to learn about the most productive ways to work from home, said Lisa Fulford-Roy, senior vice-president of client strategy for commercial real estate company CBRE Canada.

It has also shown us the gaps that technology doesn’t bridge.

“As people we crave being with other people. Face to face is far more engaging than Zoom because you’re reading entire body language,” she said.

There is something psychologically exhausting about being on 10 video calls a day, and it doesn’t allow for unscheduled collaboration and mentoring, said Fulford-Roy.

She hopes companies don’t use the global stay-at-home experiment as a means of reducing operating costs and driving profits. She wants to see them reinvest in workplaces as a point of connection for their employees. Without those opportunities, workers will be left grappling with how to identify with their organization.
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