Please, no sympathy cards; the office is not dead. Rather, it’s in the process of redefining itself after tenants were forced to abruptly abandon their spaces for the safety of home before returning with new operating models and expectations of modern workspaces.
The world’s largest impromptu work-from-home experiment has revealed that commuting to the office each and every day is far from the only model. Local commercial real estate experts say the workplace was already headed toward a combination of remote work and office collaboration, and that its evolution was merely fast-tracked by the pandemic.
BOMA Ottawa president Shawn Hamilton sees the hybrid model as a positive development.
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An inside look at Ottawa’s office market trends
With organizations standardizing hybrid work, Real Strategy anticipates this reduction in tenant demand to continue.
“The balance between the two is powerful, in terms of giving people space and flexibility but also preserving culture, leadership, mentoring and collaboration,” he says.
In other words, those hallway chats and watercooler conversations do matter. People are social beings who crave connections and face-to-face conversations. Modern offices have become open, dynamic and stimulating workspaces, with fewer walls and doors.
“An office is another form of community,” says Hamilton. “It’s a way we can interact, it’s a way we feel we belong. We’re with like-minded people; we share ideas.”
Hamilton is blunt: In his view, COVID-19 is not the death of the office.
“It’s a change,” he says. “Change has always been happening and it’s always been accelerating. People should look at this with interest rather than fear.”
Bob Perkins, an Ottawa-based vice-president in Deloitte’s real estate advisory practice, says companies everywhere – including Deloitte – are in the process of determining how much office space they may need in the future.
Many of Deloitte’s own offices across the country are flexible workplaces with unassigned seating. Even before the pandemic, employees of the global advisory firm were accustomed to working remotely on a regular basis.
“The assumption that people are going to come into the office and work five days a week and eight hours a day at their desk is likely gone for us,” says Perkins.
There are, however, a couple of mitigating factors. The emphasis on physical distancing during the pandemic may mean that companies will want extra space for employees to spread out. The amount of office space allocated to each employee has shrunk by roughly 40 per cent over the past couple of decades, from 250 square feet per person to 150 square feet or less.
As well, larger organizations are exploring other workplace options, such as the hub-and-spoke model, Perkins notes. This involves renting smaller spaces across a metropolitan area, as opposed to having one single, large downtown head office, which can be a commuting hassle for some employees.
Conversely, some Ottawa groups and organizations have announced their employees won’t be returning to the office. Ever.
“Frankly, I think it’s myopic,” opines Perkins. “It was too soon to make that determination, and they’ll likely change their mind. I would agree with some of the theory out there that people need a place to collaborate.”
The commercial real estate industry is expected to make a slow but full recovery, despite current work-from-home trends, according to a 2020 global office impact study done by Cushman & Wakefield, a commercial real estate advisory and consulting firm.
It’s projecting the office leasing market will begin improving in 2022 and return to pre-crisis peak levels by 2025. The study forecasts that the office will continue to play an important role in the economy going forward.
“I would say that tenants are being cautious,” says Nathan Smith, senior vice-president, managing director and broker with Cushman & Wakefield Ottawa. “Some have overreacted, but most have reacted with a wait-and-see attitude.”
Ironically, the old-fashioned office layout – with divided offices and cubicles, and more square-foot space per employee – is what’s needed to slow the spread of the novel coronavirus.
“In an ideal world, if we could turn the clock back 15 or 20 years and everybody was back in their own private offices, it would be perfect (for physical) distancing,” says Smith.
Cushman & Wakefield is forecasting that the number of people working from home will nearly double from the pre-pandemic rate of 5.5 per cent to a post-pandemic rate of about 10 per cent. That means in the Ottawa region, there could be an additional 35,000 people working remotely on a permanent basis, says Smith.
With many companies looking to reduce their office footprint, subletting has become an attractive option for some tenants. It offers move-in ready office space, lower rents and shorter lease terms. But it can also come with non-negotiable terms and certain risks, such as eviction if the sublessor defaults under the master lease.
The good news is that landlords, in trying to lure new tenants to vacant offices, are more open to replacing long-term leases of five to 10 years with more flexible lease arrangements, says Warren Wilkinson, managing director of the Ottawa office of Colliers International, a global real estate services and investment management firm.
“More than ever before, they’ll need to be amenable to six-month, 12-month and 36-month terms,” he says.
Wilkinson expects to see the industry rebound as COVID-19 vaccines are rolled out. He says he’s already seeing an uptick in the number of potential tenants checking out available office and retail spaces.
“It’s nowhere near where the levels used to be pre-pandemic, but it’s well ahead of where we were in the dark days (of) May, June and July,” he says.
Like Wilkinson, Hamilton takes a building-half-full outlook on the future of the office market in Ottawa.
“As work-from-home trickles through the pipeline, people will decrease their footprint, but I also anticipate that the strength of Ottawa as a business community, as a tech hub, as a quality-of-life (destination) will further drive business to come to Ottawa to slowly backfill that space,” Hamilton says. “I think we’ll be more diversified, more resilient and more prosperous as a result.”
Hamilton says he’s impressed with the way landlords and tenants are working together through the current crisis.
“As a whole, the landlord community has responded in an empathetic, proactive way, and I think that’s exciting for our industry going forward,” he says.
Tal Scher is director of property management for The Regional Group, an Ottawa-based real estate firm that manages residential units as well as commercial, industrial and retail space.
He says he and his team are communicating more than ever with their tenants, particularly with those in need of government rent relief.
“I have a really strong relationship with a lot of the tenants now because we’ve had to talk with them about their financial situation, we’ve had to talk with them about how their business is doing,” says Scher, stressing how important it is for landlords to listen to their tenants, especially during challenging times. “You may not agree with everything, but you take what they have to say into account.”
A common COVID-related request from tenants, he says, is the need for frequent cleaning of buildings and specific touch-point areas.
Michael Morin, a commercial property manager at District Realty, says the pandemic has created a “learn-as-you-go” process that involves accommodating the needs of different tenants and different buildings.
“There’s no one answer,” says Morin, whose firm manages more than one million square feet of office space, as well as some retail, light industrial and residential properties. “We’re making sure they know we’re here for them and we’re working with them and their staff to be safe, to continue in business, and to look to the future together.”