Canada’s commercial office sector is down but not out, according to a panel of commercial real estate professionals assembled for the Altus Group’s National State of the Market 2021 webinar recently.
The Feb. 18 event offered data and analysis of trends in residential, office, industrial and retail markets buffeted by the COVID-19 pandemic with one stark statistic setting the tone for the proceedings: total building investment was down 21 per cent year over year from 2019 to 2020.
But even with the reality that office real estate dropped the most year over year last year, from 606 deals to 471, and with working from home recognized as a trend with staying power, panellists argued the future of the office market is not as bleak as some have suggested.
At one point moderator Colin Johnston, president of research with Altus Group, asked John Ballantyne, senior vice-president for asset management with RioCan, if he agreed with the results of a survey that indicated 53 per cent of respondents from the sector thought that office space demands might drop 10 to 20 per cent in the long term.
“There’s been a push for people to do more things from their homes over the last couple of years, and now they’ve all been forced to stay in their homes for the last year,” Ballantyne said. “I really think there’s going to be a reversal of that and people are not going to want to stay home, they will want to be back in their office, they will want to be back in shopping centres, seeing movies, eating in restaurants.”
Peter McFarlane, senior vice-president of investment management operations with Fiera Real Estate, added to the point.
“There’s a reason we have these office buildings, and they are more productive,” he said. “Yes, we will have video conferencing, yes we will have more flexible work locations and schedules. But the office is here to stay. I don’t think office is dead.”
Anne Morash, senior vice-president for multi-residential with GWL Realty Advisors, tackled the question of whether urbanism is under threat — whether the current movement for downtown renters to escape the city and look for more space in suburbs and rural areas would become dominant.
“I’m an urban planner at heart and I do believe in the strengths of our downtowns from a multi-family point of view,” said Morash. “Typically, when the immigration floodgates open, and I think that they will, typically 75 per cent of immigrants to Canada rent, and many of those immigrants come to the major markets.
“A lot of people come to Toronto, and they like to be downtown where the jobs are and access to public transit. I don’t think that there’s going to be the death of downtown multi-family at all.”
Morash said working from home might eventually reduce demand for office space by seven to 15 per cent
“I think that post COVID, you’re going to see a balance between coming into the office and working from home,” she said.
The panellists agreed for some sectors, it is tough to predict long-term investment trends right now. Johnston said there were not enough investment benchmarks to make proper evaluations.
McFarlane, addressing a recent investment report from MSCI, stated, “What I find shocking with the MSCI data that came out last week, and you know retail is down 15 per cent across the index and industrials up 12 and 12-and-a-half per cent, so the divergence between those two asset classes is just staggering.”
He said office is currently in “discovery mode.”
Ballantyne said the health of some subcategories within retail, such as grocery-centred strip centres, is guaranteed, but otherwise in retail it’s “wait and see” until “there’s better data come out about rent collection and retailers who may fall by the wayside.”
Regarding retail, “Obviously I think people have taken a pretty serious pause right now.”
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