For some time, major Canadian office markets have been experiencing a flight to quality, with many tenants leveraging increased vacancy and resulting supply to relocate to newer, higher-quality, better-located offices with attractive amenities.
But we’ve been noticing a variation on the flight to amenities. Lately, it’s clearer that our office market is amid a “flight to experience”.
For many companies occupying office space, hybrid work is here to stay. The challenge, however, for both tenants and landlords, is figuring out how to attract and keep people in the office and have them use that time effectively.
Office owners and occupiers are in this together.
Producing a quality office experience is a win-win for the tenant company and the building landlord. To achieve this, we must expand and recalibrate our perspectives on the workplace and see it as part of an ecosystem of convenience, recreation, and social activity – and of course – as a place for your team to focus, build culture and get their job done.
As we consider where the national office market currently stands, it is obvious supply and demand conditions present a challenge that must be met with creativity and dynamic thinking.
Elevated vacancy, sublease availability provide opportunities and challenges
Vacancy in national downtown office markets is at 16.2 per cent, totalling 54 million square feet of available space. Of that space, more than nine million square feet are on the sublease market, and that figure is climbing, according to Colliers’ Q2 National Market Snapshot Report.
The sublease market has created new opportunities for tenants, while posing a more formidable challenge for landlords to ensure their buildings are well-occupied and properly used.
We have never seen inducements, including free rent and turnkey offices, being offered by landlords on such a large scale as we are now. It is obviously a reaction to broader market and economic realities.
Canada’s office market, from the landlord’s perspective, is facing more competition, thanks to increased vacancy and the large tracts of new class-AAA office towers that have completed in recent months and years.
What are tenants really looking for?
Colliers’ Real Estate Management Services group recently released a study on tenants’ perspectives on office space and their motivations to renew their leases, or not.
Among the findings were that tenants are more likely to renew leases if their building is located near a main transit hub, allows for a short commute and/or has sufficient and accessible parking. The experience of getting to the office is still a major factor for many who commute from outside the urban core to their jobs.
Additionally, nearly half of tenant decision-makers would like to make a change to their office environment, specifically to have more space for quiet, independent work. Enclosed areas ideal for meetings or focus work remain some of the most in-demand spaces in the office.
As a result, corporate mandates or policies requiring people to be in the office on certain days also drive how companies use or adjust their workspaces. Our report found companies desiring higher employee in-office attendance were 1.6 times more likely to indicate a need for more focus space.
It is clearer that the office environment is still an essential engine, albeit in a hybrid form, for Canadian commerce. However, if companies want their people to work effectively and positively in the office, they must have comfortable, quiet spaces for both focus and collaborative work, that serve as buffers from the more boisterous sections of open-concept offices that have become so common.
The goal is to achieve balance.
Companies are working hard to find that balance
An office move last year by a client is a good example.
Middlefield, a financial services firm, had been at a traditional office tower on Bay Street in Toronto since the 1980s. Three-piece suits were common; the workforce primarily consisted of the older demographic; cubicles and large private offices were typical.
Leadership wanted a change reflective of the younger cohort which would drive the future success of the business. The space needed to reflect a forward-thinking mindset and deliver an experience that would be a tool to enhance attraction and retention of top, well-educated talent.
So, Middlefield moved its expanding staff into a 12,000-sq.-ft. location at The Well, a master-planned, pedestrian-oriented blend of office, residential and retail development. The Well is at the intersection of the downtown financial core and the downtown west area.
Middlefield realized The Well provided a plethora of food and beverage, social space and shopping options that supercharged its team’s sense of place, and made coming to work pleasant, convenient and fun, says Dean Orrico, president and CEO with the company.
“Our space is a totally open-concept with a reduced number of private offices,” he says. “There’s plenty of beautiful light coming in all day. We have a welcoming eat-in kitchen and lunchroom for people to interact and socialize, and we’ve got an excellent collaboration space in the middle of our main office area.”
He says the new space provides many spontaneous discussions, which leads to creativity and collaboration.
“The Well is really buzzing,” Orrico says. “It’s a hub of activity, not only during weekdays, but also on weekends.”
He says the location and the office space give its staff a much better in-office experience, and has also been an impressive asset to host clients.
Experience is now paramount in the office market
People and companies have been preoccupied, and rightly so, with the flight to quality. In Toronto’s financial core, for instance, total absorption of class-AAA office space climbed from 1.2 million square feet in 2021 to 1.7 million square feet in 2023, according to Colliers research.
Experience is what’s really driving that demand. And sometimes, strategic shifts can create a positive feeling for tenants.
For example, a major Toronto office complex recently transformed its quiet and understated lobby into a bustling hub of meeting places and a cafe offering higher-end coffee and pastries with a variety of seating options. The space is now super vibrant, attracting workers from the building as well as visitors and nearby university students.
Changes like these provide meaningful touchstones in your daily life that are pleasant and convenient.
Bigger picture – landlords and tenants alike need to recognize the office is about more than a workspace: It’s a convening space and it’s a place to celebrate wins, build relationships, troubleshoot and nurture creativity. And for many businesses that must brainstorm, trouble-shoot and communicate on the fly; the in-office experience will never be surpassed.
The office is also a place that can anchor your team in an easily accessible, dynamic, go-to part of your city. It also provides a bit of FOMO. The fear of missing out or being left behind is a serious side effect of the work-from-home revolution that needs to be more deeply explored.
Hybrid work is going to continue in some form or fashion for the foreseeable future. Finding the right balance between remote and in-office work will be critical in developing culture and maximizing growth opportunities for employees and the businesses they work for.
Spending more time, effort and capital improving your office experience will help to achieve that balance.
