Sheila Popo, owner of a fashion accessories store at First Canadian Place, on Mar 8.Fred Lum/The Globe and Mail
On an afternoon last month in Toronto’s financial district, one of the subterranean food courts was packed.
It was one of those days when the country’s financial capital resembled prepandemic office life. There were lineups for fast-food chains such as Jimmy the Greek that snaked through the rows of tables. Groups of office workers moved through the halls. Trendy restaurants were full.
That was a Thursday, just after noon. It’s a different story on Mondays and Fridays, when hardly anyone is in the office and retailers are mostly empty. After three years of working from home, a new pattern has taken hold: three days in the office, Tuesday to Thursday.
“No one is here on Monday and Friday,” said Sheila Popo, owner of accessory store Necessities, one of the tens of thousands of retailers in Toronto’s downtown hub.
Ms. Popo said her clients come to the office one to two days a week and tell her they “have no plans to go back” to five days a week.
She laid off her full-time employees in mid-March of 2020 and has never rehired them because her sales are 50-per-cent below prepandemic levels. She cut back how long her store is open by three hours a day.
“It’s almost as if we need a three-day opening,” Ms. Popo said.
As another year of the pandemic rolls on, there are signs that hybrid work is becoming entrenched.
The days when life centred around the five-day office week appear to be gone, disrupting the foundation of downtown Toronto. Office workers no longer need to rely on the bevy of retailers that used to service their every need, from hairdressers and dry cleaners to food shops making take-home meals for their families.
As of early March, the percentage of employees in Toronto’s financial hub averaged 43 per cent of prepandemic occupancy levels, according to data from consulting firm Strategic Regional Research Alliance, which conducts in-depth interviews and surveys of downtown office tenants. That is the highest level of occupancy since the pandemic started – a dismal sign of the slow return to the office.
The busiest day of the week was on a Wednesday, when volume was 55 per cent of prepandemic occupancy and the slowest day was a Friday at 32 per cent.
Foot traffic in downtown Toronto is about 40 per cent of prepandemic levels, according to the most recent reading from Avison Young’s vitality index, which measures cellphone pings throughout the downtown core.
The city has been consistently lower than other major office hubs such as Chicago, New York, San Francisco, Ottawa and Vancouver, according to Avison data, an aftereffect of Toronto’s rolling lockdowns during the first two years of the pandemic – which were much more extensive than other cities, Avison added.
As the amount of time spent in the office has faltered, employers are trying to figure out how much space they need. They are either putting their space up on the sublease market or reducing the amount of space when it comes to their lease renewal. This is in addition to the reams of sublets that came on the market during the first three years of the pandemic.
So far this year, tech company Shopify put seven floors of unused office space up for sublease in one of the biggest blows to downtown Toronto’s office market. Telus Health put a large sublease on the market. Online used-car company Clutch Technologies said it was consolidating its office space to a location where the cars are kept in a sprawling strip-mall area north of downtown.
Every day, businesses are re-evaluating their need for space. One of the biggest problems for the return to work is that employees do not want to go back to five days a week in the office.
Tech company Financeit has a staff of 250 employees. An average of 50 of them physically go into the office.
Financeit chief executive Michael Garrity said his employees have reported increased productivity as well as an increase in workplace satisfaction. “The typical workday is not the same as it was two years ago when we originally signed the lease, and we have made changes to reflect this,” he said in an e-mailed statement.
People pass through a section of the PATH system under First Canadian Place on March 8.Fred Lum/The Globe and Mail
Decisions to give up space will push Toronto’s downtown office vacancy rate above the 16-per-cent level reached at the end of last year, according to commercial real estate firm Altus Group. That is four times higher than in prepandemic days and does not include Shopify, Telus Health’s subleases or any of the other ones coming on the market.
As demand for office space declines, investors are starting to shy away from office buildings. There was a total of $75-billion worth of commercial real estate transactions in Canada last year. Of that amount, 10 per cent were office building deals, according to Altus data. That is down from a share of 17 per cent in 2019. And the risk to buying an office tower is rising.
“They are selling but selling at a discount,” said Raymond Wong, Altus’s vice-president of data operations.
The fallout from the shortened office week has rippled throughout Toronto’s financial hub. A chic food hall with floor-to-ceiling windows, chandeliers, a large TV screen and a dedicated spot for a DJ, was mostly empty one Wednesday during the prime lunchtime hour.
Throughout the underground mall, places that used to be in top locations, next to escalators or at the intersection of two buildings, continue to be empty or have their windows papered over. There are signs advertising places to lease in many locations and retail staff can be seen surfing their phones for lack of customers.
“There is definitely a new rhythm,” said Nikki Nath, manager of Rocky Mountain Soap Company in the underground mall since the fall of 2022. “Wednesday is the really intensive day in the week and it almost feels like it’s back to normal.” Ms. Nath said her customers have told her that their employers have been trying to get them to come in that extra day in the office but they are reluctant. “I’ve never had a customer say ‘Oh, I love being back here.’”
When workers make the trek to the office, they cram all their in-person meetings and lunches in those days.
The president of the Oliver and Bonacini group of upscale restaurants and catering said that his fine dining eateries such as Canoe and Jump are mostly thriving in the middle of the week for lunch and dinner.
“They’re saying, ‘Look I’m coming in on Tuesday, Wednesday, Thursday. I’m going to be meeting with people on Tuesday, Wednesday, Thursday and have that human-to-human contact. People aren’t coming in to be on zoom calls,” said Andrew Oliver.
The Strategic Regional Research Alliance says some of the city’s largest employers continue to reveal frustration with too little in-person work and the deterioration of output.
The chief executive of the country’s largest bank, Royal Bank of Canada, agrees that there is a loss of productivity from remote work. Though so far, the large financial services firms have not mandated a five-day return to the office.
Even if that were to occur, RBC’s chief executive Dave McKay said he does not think office life will return to prepandemic levels. “There will be companies, like us, that release some real estate. I don’t think we’ll have 100 per cent of the portfolio we had before,” he said on a March conference call to discuss the bank’s quarterly results.