Commercial real estate outlook
Office
This year has seen a reversal of past trends, in large part due to COVID-19. While in previous years we saw a move towards reduced space requirements and increased densification with the rise of open-concept offices and co-working environments, physical distancing measures may be prompting a need for more space.
While some companies have begun bringing employees back to physical workplaces, returning to the office remains elusive. We asked employers and employees about their views on this in our recent Canadian workforce of the future survey. Of employers that had yet to return to the workplace, 78% expected to do so to at least some extent in the next three months. When we asked employees about their ideal work environment, 34% said they prefer to work mostly or entirely remotely; 37% want to be in the office most or all of the time, with the remaining 29% looking for an even split between the two options.
The findings reflect ongoing uncertainty about the extent to which tenants will bring their employees back to offices. But some developers and institutional investors are confident the market will come back because humans are social creatures—they’re suffering from video-conferencing fatigue and miss spontaneous in-person collaboration.
While remote work has generally turned out to be productive, some of our interviewees question whether this is sustainable. There’s also a strong feeling that face-to-face interaction is important, especially for hiring, integrating and mentoring entry-level staff and for developing organizational culture.
For now, office is seeing a shift. While JLL Research found Canada’s office vacancy rate of 10.2% in the second quarter of 2020 was just 40 basis points over the long-term (20-year) average, COVID-19 is amplifying demand for more flexible commercial real estate, including short-term leases. Some interviewees also question whether the pandemic will spark renewed interest in suburban office development as some employees look to work closer to home. While there’s no clear trend in that direction, there’s an overall sense that despite its resilience, the office segment will need to evolve.
