IWG and TCC’s expansion push comes as traditional office vacancy rates continue to climb amid widespread uncertainty about the future of the workplace.
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A global provider of flexible office space is expanding its real estate footprint in the National Capital Region amid what it calls a “dynamic shift” away from traditional office space – but some industry players say it’s still too early to tell if co-working is poised to enjoy a post-pandemic boom.
IWG, which operates nearly 130 co-working spaces across Canada, announced in mid-January it is opening two new locations in the region next month under its HQ brand.
The new workspaces – comprising 7,200 square feet in a four-storey building at 396 Cooper St. in Ottawa and 5,000 square feet in an office tower at 200 Montcalm St. in Gatineau – are part of IWG’s plan to double the size of its Canadian network over the next three years.
Wayne Berger, the company’s CEO for the Americas region, says demand for flexible workspace is spiking as more companies reassess the need to tie up valuable capital in long-term leases for traditional real estate when splitting time between the office and home is the norm.
“The idea of the complete workforce going to a corporate headquarters five days a week from 8:30 to 5 is frankly becoming less and less prevalent,” says Berger, an Ottawa native. “But companies still want a place where their team members can touch down and gather in a very purposeful way.”
Sean Cochrane, president of Ottawa-based co-working provider TCC Canada, agrees.
“Nobody that I know can predict what their office utilization is going to be like six months from now, let alone 10 years from now,” says Cochrane, whose firm owns and operates five co-working spaces in Ottawa and two in Vancouver. “The idea of getting trapped into a traditional lease, it’s just money out the door. It’s such a waste.”
With business on the upswing, TCC Canada is poised to expand into Montreal and Toronto later this year and is now talking to landlords in Calgary and Halifax about setting up shop in those cities.
“I think (leasing flexible office space) is really going to be a big problem-solver for a lot of organizations,” Cochrane says.
IWG and TCC’s expansion push comes as traditional office vacancy rates continue to climb amid widespread uncertainty about the future of the workplace.
A new report from Colliers Canada says that even as COVID-era restrictions become a thing of the past, employers, workers and building owners are still struggling to figure out exactly what the “new normal” will look like.
“After almost three years, it is clear we are in the age of hybrid work, yet companies continue to experiment and their space needs continue to evolve,” says the study released last month, called The New Age of Hybrid Work.
The report predicts Canada’s office vacancy rate will peak at about 15 per cent, up from its current rate of about 14 per cent, by the end of 2024 before starting to decline.
Meanwhile, Colliers says flexible office space – which it defines as designated space in an office building that is shared by all tenants, such as bookable boardrooms or co-working spaces, as well as short-term leases of turnkey space – will make up eight per cent of Canada’s total office inventory, up from its earlier prediction of six per cent.
Berger says that as remote work takes hold, companies are ditching the idea of leasing central office hubs and embracing a “just-in-time” approach, renting flexible space in suburbs and other tertiary markets.
He says IWG, which already operates six flexible work locations in Ottawa and Gatineau under its Regus and Spaces banners, is “actively searching” for real estate in outlying neighbourhoods like Orléans and Kanata in a bid to cater to employees who want to be close to home but still have access to the benefits of a shared office, such as social interaction and amenities like extra desk space.
“It’s just more fluid, more dynamic,” Berger says. “People want the ability to eliminate their commute and they want to plan where they work with what’s required of them that day.”
Cochrane says TCC is also seeing strong demand for its suburban locations like Kanata North.
“The pandemic has really driven home for people, ‘Maybe I don’t need to be in the downtown core. Maybe I don’t need an hour commute every day,’” he says.
Still, some real estate brokers say that while they expected a flood of companies to adopt such a “hub-and-spoke” office model in the wake of the pandemic, the concept has failed to gain much traction.
“We’re not yet seeing this on the ground,” says Louis Karam, CBRE’s senior vice-president for the Ottawa region.
According to CBRE’s latest research, Ottawa had about 465,000 square feet of flexible office space in the fourth quarter of 2022, representing just over one per cent of the city’s total office inventory.
While the amount of flex space in the suburbs has risen 38 per cent since 2019, most of Ottawa’s flex space – nearly 300,000 square feet – remains in the downtown core. And although the city’s total flexible office footprint has grown 18 per cent over the past three years, the curve has begun to flatten.
Ottawa gained a net total of just 4,000 square feet of new flex space between the second and fourth quarters of last year, Karam says. In the same period, a couple of established co-working spaces – Coworkly’s location on Richmond Road and WorkAway’s office at Lady Ellen Place south of Westboro – shut their doors.
Coworkly owner Maher Arar says the co-working industry “suffered a lot during COVID” as workers hunkered down at home. Now that remote work has become an ingrained lifestyle, businesses like his are finding it hard to lure tenants back.
“Every person I speak to, it’s the same,” says Arar, who continues to own and operate a 9,000-square-foot space under the Coworkly banner in Vanier. “Ninety-nine-point-nine per cent of people have gotten used to working from home.”
The occupancy rate for daily flex space at Coworkly’s Vanier location is around 30 per cent, Arar says, while dedicated offices that rent for monthly periods or longer are about 60 per cent filled.
The veteran entrepreneur says those numbers – particularly for the more lucrative flex space – need to be much higher for the business to turn a consistent profit. Coworkly has pulled itself out of the red, but Arar says it needs to generate more revenues to remain sustainable.
“You can’t just break even because you have to recoup your losses from the COVID era,” he says. “When you start having wait lists, that’s when you’re going to be profitable.
“We’ve seen an uptick in demand recently, but it’s not enough. Maybe in a year’s time. I don’t know.”
Longtime commercial real estate broker Michael Church says the growth of co-working in the nation’s capital – like so much else in a city where the federal government is the largest office tenant – could hinge partly on whether the feds embrace the idea of leasing short-term space rather than getting locked into long-term deals.
Although most civil servants have been mandated to return to the office at least two or three days a week, it’s still anyone’s guess how the feds’ real estate strategy will play out in the long term, says the managing director of Avison Young’s Ottawa office.
“It’s so hard to make a prediction right now, because we just don’t know what the end product’s going to look like,” Church says.
