To call these times unprecedented would be an understatement. Pandemic-related closures and lockdowns have changed business-as-usual for a number of industries, and while some experienced an unavoidable lull, others were able to adapt.
For instance, the real estate industry on the whole experienced fast-tracked digitization thanks to COVID-19. In addition to the introduction of virtual listings, showings, and staging, the digitization of the industry also spurred in a shift in the kinds of amenities expected from future housing supply. Think: smart lockers, pre-installed smart home assistants, and contactless concierge and delivery services and systems.
A similar tune can be sung when it comes to the nature of office work. Due to a vast number of business and office closures, working from home has quickly become the new norm, leaving Canada’s commercial and industrial real estate sectors in states of flux. As such, companies have had to leverage new and existing technologies to guide the transition to remote work.
In many ways, we are living in the future. This said, in countries such as China and South Korea, the workforce is already returning to office settings, with office towers in Seoul, for instance, approximately 90 percent occupied compared with pre-COVID-19 levels. This kind of data prompts the question: when and how will the Canadian workforce follow suit? And further, how has COVID-19 shifted the demand for office space and what exactly is expected from commercial and industrial real estate in Ontario’s most flocked-to regions.
Canada’s rebounding commercial real estate sector
In a Real Estate Forums webinar this past May, CIBC World Markets managing director and deputy chief economist Benjamin Tal, spoke to the health of Canada’s real estate market segments, including the commercial real estate sector.
In response to predictions that office building values would plummet due to telecommuting, Tal cited that social distancing measures will prevent offices from returning to their full capacity in any event. Says Tal, “I think that those who predicted that this market will collapse are overstating the damage. I don’t think that the move towards people working from home will be as dramatic as perceived, given the productivity aspect. Even if you lose 20 per cent of people working in the office, you will have to build bigger, which means that you have a situation in which the demand for space will be relatively steady or maybe reduced a little.”
Commercial and industrial real estate in the Niagara region
Due to a growing number of remote workers seeking to purchase larger homes with better value outside of the Toronto-area, the Niagara region boasts a healthy real estate market on the whole. The region also has strong activity in the commercial and industrial real estate segments.
As far back as 2018, the National Bank of Canada’s Metropolitan Economic Momentum Index reported that Niagara had one of the strongest economic momentums in Canada, second only to Hamilton. The same source cited that Niagara’s powerful economic status was, in part, driven by non-residential building investment, which had registered a growth of over 30 percent at the time.
More recently, statistics via the City of Niagara Falls stated that the value of commercial, industrial, and institutional construction saw a 348 percent increase in 2019 compared to 2018, to $143 million. And according to information released by The Canadian Press in July, investments in non-residential buildings, such as offices and warehouses, rose 65.6 percent in May compared to April 2020.
Speaking specifically to Niagara’s industrial real estate segment, demand is high, vacancy is low, and the sector is undersupplied. To add, Niagara’s industrial segment was less affected by the coronavirus pandemic than its residential and commercial counterparts. In part, this is due to the fact that vacancy in this market segment has always been low.
Another reason for low vacancy has to do with a new wave of tenant’s entering the industrial market since the onset of COVID-19: would-be brick-and-mortar retailers. With many retailers transitioning their operations from store-front businesses to e-commerce, demand for industrial warehouses, which can be used to store and process inventory, continues to be driven up.
Fortunately, Canada’s construction sector is poised to emerge strong despite a short lull ensued by the initial onset of COVID-19 earlier this year. A report from Statistics Canada showed that construction spending rebounded in May, most notably in Ontario, thanks to easing restrictions from the COVID-19 shutdown. In other words, new supply is underway.
Spurring change in the office sector (trends & insights)
While the vast majority of companies have resorted to remote work while the future trajectory of the pandemic remains unknown, there are certain fallbacks related to telecommuting that—in many cases—prevent it from being a long-term strategy.
With the intent being to follow the lead of countries like China and South Korea, where the workforce has largely returned to the office, demand for high-quality office space is expected to normalize and maybe even increase. Moreover, the nature of that demand will indefinitely shift as the pandemic continues to loom.
Remote work as a supplement to office work
With physical distancing still in effect, working from home poses a level of indisputable practicality and flexibility. That said, the upshots of working in an office setting are profuse, including more effective teamwork and collaboration, a stronger sense of culture and community, and increased cybersecurity and confidentiality. In-person interaction is also beneficial when on-boarding and training new employees. For all of these reasons, remote working is poised to become a supplement to office work in the long term, rather than eclipsing it completely.
Improved health and safety regulations
When it comes to day-to-day office operations, certain measures will become commonplace. This extends to include social distancing requirements, heightened cleaning procedures, revised policies for sick employees, company-supplied protective equipment, and on-site temperature testing. More health and safety amendments include workstations divided by barriers and improved air filtration systems.
A shift towards digital-first amenities
Some tech-forward developments we can expect to see within office environments include contactless elevator systems, space-utilization analytics, and autonomous robots with capabilities that range from cleaning and sanitization to the facilitation of remote security checks. Finally, in keeping with the digitization of the real estate industry on the whole, tech-forward standards will be adopted at the leasing level within the commercial sector, with platforms offering start-to-finish virtual services for marketing, listing, showing, and leasing commercial properties. The appeal here is increased safety and convenience for sellers and investors.