Working from home is an idea that has never been more familiar to many Canadians. In an effort to curb this latest wave of COVID-19, public health officials urged people to work from home and encouraged employers to give their employees the support needed to ensure this could happen. The measures were successful, at least here in Nova Scotia, and many areas now seem able to see the other side of the pandemic. What does this mean for the office industry though? With vaccinations rising and people having a generally higher level of comfort, will working from home continue? Will there be a full shift back to in-person workspaces? A combination of both? Lastly, what does this mean for our office real estate market?
The realization that much of the work completed in offices can instead be done from home is a win for companies as a major way to cut costs. The pandemic has shown that there are many other additional benefits to working from home other than cost-savings, for example avoiding the antics similar to those that Jim plays on Dwight, or skipping a long daily commute. However, like every situation there are some disadvantages as well. In order to balance the benefits of remote work while providing employees with the experiences that necessitate an office, a hybrid model of work is the likely route many companies will take in the future. This means that employees will both work from home and go into a physical workspace, allowing for increased flexibility. A recent survey conducted by PwC found that of 133 executives, 55% of them plan on allowing their employees to continue to work from home at least part of the time. From an employee perspective, across North America the hybrid model seems to be preferred way of working, going forward. In one survey, completed by KPMG, 77% of the 2,000 respondents indicated they wanted a hybrid model of work after the pandemic eases. Another survey, completed by Statistics Canada, indicated that 80% of new teleworkers would like to continue working from home for at least half the time post-pandemic.
If it has been proven that employees can work from home and productivity hasn’t taken a major hit, at least in the short term, why do companies need any office space? One of the main reasons is the fact that some things are just better suited to being done in person. For example, creativity and innovative ideas may be best generated when a team can discuss and bounce ideas off of each other. While this can be done virtually, it can be easier to collaborate in person, and employers understand this. Additionally, subtle body language or cues can help indicate whether someone likes or dislikes an idea, something that is challenging when you are separated by a computer screen. Those conversations around the coffee machine are something people crave, and sometimes even lead to new ideas, partnerships or collaborations. For certain sectors, having physical space is needed for storage of equipment, meeting with clients or for operations like IT that require a physical base and hardware. While accommodations could have been made for these sectors during the pandemic to allow them to work from home, in the long-term providing physical space for these purposes will be favourable.
Will this new model of working influence the type of workspace that becomes prominent in the office market? It is hard to say for sure, but we expect the answer to be yes. Flexible workspaces, which focus on short term leases, move-in ready spaces, and coworking spaces, have become fairly resilient through the pandemic and are increasingly appealing as more companies start utilizing the hybrid model. One of the main attractions of these spaces is that it allows offices to be located in a wider variety of locations and supports a more mobile workforce that comes along with the hybrid model. Another very possible trend in the office market is that companies are more likely to have smaller offices, more evenly dispersed throughout a region, instead of one main office. The second key attracting point of a flexible office is their ability to be more easily acquired and terminated than traditional office space. No one wants to think we are going to face another lockdown, or even worse another pandemic, but proactive is always better than reactive, and if a bad situation does present itself companies will want to terminate their leases as quickly and easily as possible. This type of office is also best suited to companies still trying to figure out what exactly they want and act as a “bridge” between the pandemic and the potential unknown of the future.
As mentioned, coworking spaces are a type of flexible workspace. Common examples are WeWork, Regus and The Corporate Centre. Fundamentally, the coworking model isn’t the safest when it comes to COVID transmission. Defining characteristics of coworking spaces – lots of people, shared spaces and employees from different companies are all things that would be considered to be risky in terms of COVID. But any office space, whether it be flexible or traditional, has had to implement increased safety measures. If the hybrid model is to work, and employers want to encourage their employees to come into the office, safety will have to be at the forefront of their priorities, at least until Canadians reach the target level of immunization.
Coworking spaces market themselves as being cool, comfortable and cutting edge places to work. Design features such as plants and eco-installments, comfortable furniture, readily-available food and beverage, and innovative technologies such as 3D printers, large projector screens and touchless features are all things that contribute to this brand that coworking offices pride themselves on. These features are often referred to as the hotelization of office space. The hotelization of offices will be important in a post-COVID world, to help incentivize people to make the return back into the office. David Gooderham of WSP London stated that “to justify its existence, the office will have to become a destination with a purpose.” If people are used to working from home, going into a physical space should be something they look forward to. Physical workplaces have the ability to add variety, through the furniture they use, the people they sit next to, the spaces that are included in the office design and the services provided. Variety is one thing you can’t really get in your own home, so in order to come across as attractive to workers, these are features that offices should take advantage of incorporating into their spaces.
In theory, the future seems promising for flexible workspaces as they are in line with what is desirable in terms of safety and design in a post-COVID world. But what does research indicate the future of these workplaces look like? Like other office spaces, occupancy rates in coworking offices were hit hard by COVID-19 as employees made the switch to working from home. The coworking industry however, was even worse off because of the easy ability to terminate a lease. Some companies were still paying for their rent in a traditional office because of a long-term fixed lease, but the ease of cancelling a coworking space meant an even bigger impact on their revenue. Across North America nearly 700 coworking spaces have closed permanently in 30 major cities. The owner of a coworking firm based in Ottawa has said that in order for this type of workplace to be successful they need to have at least 80% occupancy.
The demand for all office space has been challenged in the short term, the long-term outlook however, is looking positive for coworking spaces. The flexibility related to leasing that caused so many cancellations during the pandemic is also one of the reasons why industry leaders believe this type of office will make a strong comeback in the future. The ability to find a space with a monthly lease and therefore obtain an office space quickly, and possibly cancel that lease quickly if things don’t work out, is appealing for companies who are trying to regain some sort of structure after the disruptions the pandemic has caused. It is hard for companies to predict, given the economic conditions we are in and the uncertainty the pandemic has created, what their growth will look like into the future. Flexible space allows companies to adjust their space requirements as they go instead of having to predict what their growth will look like 3 or 5 years into the future and can budget accordingly. In a global survey completed by CBRE, 86% of the companies asked said that they see flexible workspace playing some kind of role in their long-term real estate strategy. The results of this survey also showed that the top three reasons for wanting to use flexible work space were the ease of providing a network of locations for a more mobile workforce, entering new markets, and a short-term solution for a temporary dispersed workforce. Reducing capital expenditures and testing out alternate space and occupancy models were also commonly noted reasons for including flexible space in their future plans. Coworking was gaining popularity before the pandemic and COVID-19 has only accelerated the shift companies were starting to make towards more flexible office space. As long as flexible offices can market themselves as a place where employees feel guaranteed they can stay healthy, the switch toward more flexible space is likely to continue.
With the high likelihood that the hybrid model will become common practice, what does this mean for our traditional offices? A report created by CBRE stated that vacancy rates in the Halifax office market have “shown resiliency against the COVID-19 pandemic” and changed by negligible amounts over the past year. The overall vacancy rate for Halifax office space is up to 15.8%, compared to 15.2% in the first quarter of 2020 before COVID-19 really hit. The vacancy rate of traditional office space (class A) for downtown Halifax in quarter one of 2021 was 26.1%, 0.4% lower than the previous year. While this may seem high overall, it should be noted that the new construction of the Queens Marque has added numerous spaces that have yet to be filled. Traditional office space vacancies in suburban HRM have also decreased, since peak work from home times, at a rate of 17.9% in quarter one of 2021, compared to 19.5% in quarter three of 2020. Generally, the numbers in this report by the CBRE are consistent with the trend that people are, and will continue to return to the office as the pandemic situation improves. The same report predicts that despite the fact that a hybrid model will become common, the office market in Halifax is still looking quite strong. Another one of their findings was that new sublease space in the market is being filled quickly as tenants grab the opportunity to occupy shorter term leases at a reduced rate. Sublease space doesn’t necessarily mean coworking space, but it is still a beneficial sign and the desirability for short-term leases is the most important takeaway. This is signalling that employers in Halifax are already starting to regain physical spaces and those spaces are more flexible in their leasing nature. The suburban office market has proven to be the most resilient throughout the pandemic, whose vacancy rates have dropped, a trend that Colliers International said has been common across Canada. Colliers states that the move to more suburban areas allows for more space at cheaper rents and more flexible options. These spaces are beneficial to be used for smaller, co-working and short-term rental spaces which have been of particular interest since the pandemic.
The future is unknown, especially after such a major disruption like COVID-19. It is hard to say exactly what the future of our workplaces will look like, but one thing is certain – increased flexibility in both where employees work and when they work will be key going forward.