In Vancouver, lease rates have climbed 13 per cent even as vacancy rates increased by 56 per cent.
Things are going to be different downtown when the pandemic is over, but just what the difference will be is still a matter of debate.
Everything about downtown areas seems to be open for discussion, from design to the laws that govern what can be built and even what kinds of buildings and businesses belong in the core once lockdowns and restrictions ease.
“Central business districts were vulnerable before COVID and they’re more vulnerable now,” says Mary Rowe, president and chief executive officer of the Canadian Urban Institute (CUI), a not-for-profit organization that studies and reports on urban issues.
The CUI recently played host to a two-day summit, Recovering Canada’s Downtowns, to explore what types of design and programs could potentially boost Canada’s urban cores.
The country’s eight largest metropolitan areas generate 55 per cent of the country’s gross domestic product, she said, adding that many downtowns, in Canada and elsewhere, have tended to be monocultures, dependent on a small cluster of industries.
A disruption to just a few of these industries can affect the economic life of many of them, she explained. Toronto’s financial sector accounts for 14 per cent of the city’s GDP, for example, but work-from-home has had a major effect on all the businesses and services that depend on office workers, such as the stores in the city’s underground PATH system and Toronto’s public transit.
“When you’re a one-horse town and people aren’t using horses any more, you can be in trouble,” Ms. Rowe said. It’s even harder for cities that are more dependent than Toronto on only one or two industries, such as those that rely on the energy sector, steel plants or lumber, she added.
“To protect against this monoculture, you need a downtown ‘ecosystem,’ with a lot of parts that make up a whole,” Ms. Rowe said.
Toronto’s financial sector accounts for 14 per cent of the city’s GDP.Fred Lum/The Globe and Mail
The volume of people coming to offices in Canada’s six largest municipalities (Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver) dropped a whopping 67.5 per cent between January, 2020, just before the pandemic began, and the first week of January, 2022, said Marie-France Benoit, director of national insight of Avison Young in Montreal.
Companies were planning to bring in more people to their downtown offices by now, but the Omicron variant put a crimp in these plans for many, Ms. Benoit said.
Relatively high vacancy rates have persisted throughout the pandemic, but key indicators, such as the rate of companies subletting space while their employees stay home, are stabilizing, Ms. Benoit added.
“There will be a return to downtown, but we’re still not exactly sure what form it will take,” she said.
According to Jamieson Jackson, managing director for the GTA office practice at Colliers Canada, “the key thing to remember about office space in the downtown core is there isn’t any question of whether commercial real estate will be a tool for their businesses to grow. What’s changed is how they’re going to use it.”
“People will still come to the office, but it will look different. A lot of what we’re seeing is an acceleration of trends that were already happening before the pandemic,” says Mr. Jackson, who was not involved with the CUI summit.
“For example, one of our clients had 40 per cent of their downtown desks empty at any given time before 2020 because people were working hybrid,” he says.
New office designs will need to address several key questions for which there are no clear answers yet, Mr. Jackson says.
“What’s still undecided is how many days a week people will be expected to come in, which days those will be, and who makes the decisions as to when and whether to come in – the workers, the managers or both,” he adds.
Colliers reported last May on the prospects for office recovery after COVID-19 and found companies are embracing the idea of hybrid work but still want people to come to the office sometimes, too.
“Maintaining a strong office culture has been notably difficult to achieve through remote work, with employers feeling like that sense of culture has diminished by 28 per cent,” the Colliers report stated.
Companies were planning to bring in more people to their downtown offices by now, but the Omicron variant put a crimp in these plans for many, Marie-France Benoit, director of national insight of Avison Young, Montreal, says.Christinne Muschi/The Globe and Mail
Opportunities for meaningful collaboration, employee productivity and well-being have declined by approximately 20 per cent, the survey also found.
One key element to note, as the world slowly emerges from the pandemic, is investors are eyeing Canadian downtowns as opportunities for buying and developing commercial property, said Goldy Hyder, CEO of the Business Council of Canada.
“Canadian cities are on the radar screen of every global investor we have ever met with. Our cities are extraordinarily successful,” he told the summit panelists.
Michael Emory, president and CEO of Allied Real Estate Investment Trust, added that effort is needed to make a case with stay-at-home workers that they will be better off if they come downtown at least some of the time. For example, experts say workplace collaboration helps individuals and companies focus their missions and goals, and being in an office lets upwardly mobile workers get noticed.
This will require collaboration between the private sector, government and agencies such as transit authorities and business development groups to make sure downtowns are alluring workplaces.
There are also creative opportunities, Ms. Rowe said. For example, the CUI has organized pilot programs to enable theatre groups to use vacant downtown space as pop-up locations for rehearsals. Most cities in Canada are also looking at how to provide more housing within their downtown cores, either through new development or converting commercial or industrial space.
On the retail side, Ms. Benoit said recent data suggest online shopping is plateauing, with consumers wanting to get out more.
“There’s a lot more experiential shopping now, though,” she said, with people wanting to see and sample goods and then perhaps order them later. This can change the way retail outlets are designed, for example, by having more samples of goods and less ready-to-buy inventory on hand, she said.
Mr. Emory said he’s confident downtowns will ultimately grow and thrive. But no one believes this will be easy.
“The challenge is that people have become comfortable not going downtown. It’s a North American phenomenon because we tend to have larger homes and longer commutes. At some point, people will want to be downtown, though,” he said.
One bright spot, Ms. Benoit added, is the number of high-quality buildings being built, with more than 8.5 million new square feet to be delivered by 2025.
“When workers come back, they will be impressed with the beauty of these additions,” she said.