PricewaterhouseCoopers, Cisco Systems Inc. and several other major companies are trying to offload some of their office space in Toronto, as the coronavirus pandemic continues to keep large numbers of office workers at home.
Space available for sublease in downtown Toronto nearly tripled to 1.7 million square feet in August from the end of last year, according to data from commercial real estate company Avison Young. That’s higher than the level that followed the global financial crisis of 2008, and it has helped push the office vacancy rate to 3.2 per cent in the downtown core, compared with 2.1 per cent at the beginning of the year. The same is true in downtown Vancouver, where the space available for sublease more than tripled over the same period.
PwC, an accounting and consultancy firm, is trying to sublet two floors, or about 53,000 square feet, of its Canadian headquarters in the business node south of the financial core, according to Avison.
Other well-known companies – Oracle Corp., Air Canada, PC Financial and St. Joseph Communications – have recently put some of their downtown Toronto office space on the sublet market, according to the companies or brokers.
“Those are stable, blue-chip companies that are obviously looking to rightsize their premises,” said Bill Argeropoulos, Avison’s head of research. “The question is, are we going to see others in these sort of professional services arenas or perhaps financial institutions, such as the banks, follow suit?”
A wave of tech companies tried to get rid of their space earlier in the pandemic, including Ritual Technologies Inc., CrowdRiff, Tulip, Rangle.io and other relatively new downtown Toronto tenants.
Now, big companies are looking to shrink their footprint as they keep people at home. Cisco, which is trying to sublet 27,518 square feet at its office by the waterfront, said it was “taking steps to ensure efficient use of our facilities and align for future work force demands,” including consolidating larger spaces that are no longer being fully used as its employees “increasingly adopt more flexible working patterns.”
Air Canada said with the onset of the pandemic it no longer needed the additional space it had recently leased. PwC said “it is prudent for all companies to evaluate options.” Oracle declined to comment. PC Financial and St. Joseph Communications did not respond to a request for comment.
In downtown Vancouver, the increase in subleases helped send the office vacancy rate to 3.5 per cent from 2.6 per cent, according to Avison. (Sublease space is counted as vacant and is included in the vacancy rate.)
Across the Greater Vancouver area, vacancy rates are up 30 basis points to 4.7 per cent over the same January-August period. Traction on Demand, a tech consulting company, recently put 48,000 square feet on the sublet market. Mobify and Stemcell Technologies Inc. did so earlier in the pandemic.
With most of its staff working from home, Traction reversed plans for a large office and is now seeking a slew of smaller offices throughout mainland British Columbia and Vancouver Island to cut down the commuting and to accommodate a more flexible schedule. “We want to bring our offices to our employees,” said Traction chief executive officer, Greg Malpass, who said he was not a big believer in whole offices going virtual because it passes the burden onto employees.
Although most of Canada’s economy has reopened, the hub of downtown Toronto office towers has been one of the last areas to revive. Tens of thousands of office employees in the financial district have worked from home since mid-March, devastating the local restaurants, coffee shops and retailers that serve them.
No one knows to what degree working from home will become permanent for the business community. Some big office tenants such as Shopify Inc. and Facebook Inc. have told their employees they can work remotely permanently. Big banks, such as Toronto-Dominion Bank and Bank of Nova Scotia, have told their employees they can stay at home until January. Other companies are experimenting with bringing staff back but at reduced numbers for now. Some landlords say they are getting requests for more space to accommodate physical-distancing requirements.
In the meantime, some businesses are making the decision to get rid of space and conserve cash.
“Our clients are basically saying that they have too much office space and that there are a number of people that simply will not come to work full-time and have dedicated space,” said Stan Krawitz, vice-chairman with commercial real estate company Savills Canada, who represents tenants. (He was not speaking on behalf of any of the companies named in this story.)
“It is not necessarily layoffs. It is that they are rethinking, repurposing and reusing their space,” he said.
Typically, a company subleasing space will seek to dump it for the rest of their lease term. Demand is not as robust as before the pandemic when all types of companies and entrepreneurs were frantic to secure office space in Toronto and to a lesser extent in Vancouver.
Major office landlords have sweetened their incentives for brokers to secure new leases.
QuadReal is offering brokers a Peloton bike, which retails for about $3,000 in Canada, if they lease a minimum of 5,000 square feet in a new downtown building with a minimum five-year term. Oxford Properties and Great-West Lifeco doubled their commission to about $2 a square foot from $1.
QuadReal said the incentive was one of the ways it was working with its brokers during the tough market conditions and said the Peloton bike was a “creative way to focus on health and wellness and acknowledge the current demand for in-home exercise equipment.”
Great-West Lifeco CEO Paul Finkbeiner said other landlords increased broker fees so his company was going with the market rate. Oxford said it recognized it has been a difficult time for brokers with leasing activity slowing down and would pay half of the bonus commission with Oxford gift cards, which will help support retailers.
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Rachelle Younglai