Real estate investors are seeing a shift in Canada's commercial real estate market as office employees demand more workplace amenities, better air quality and access to public transit and bike racks instead of parking lots. Although the downtown core is still where a lot of people and businesses want to be, suburban offices that can offer a great working environment and perks such as fitness centres and restaurants are becoming more important.
"It used to be, if you found out where the CEO of the company lived, then you would know where the head office was. Now, you find out where the employees want to be and the CEO will figure out how to get there," said David Gerofsky, CEO of First Gulf Corp. He was part of a panel discussion about the role of demographics on the demand for real estate at the NAIOP Commercial Real Estate Development Association conference in Toronto.
He said that when an office building is being planned, there are different people at the table than were there just 10 or 15 years ago. "Today it's very important that you have the HR department at the table. And now you have interior designers there. What employees want is a good quality of life, not a cold, sterile environment. They want better air quality and they don't want to sit in traffic."
He said the development industry has discovered that "apparently people are important."
Panelist Andre Kuzmicki, adjunct professor and executive director at the Schulich School of Business, York University, said, "People like to socialize at work. We have to create workspaces so they can do so…it's the sharing economy, part of the human condition. Sharing makes us feel good."
A report by PwC Canada and the Urban Land Institute says that office leasing is changing, "in part due to tenant's own business challenges. Tenants are reducing space per employee, and some tenants are sharing offices, or opting for value over high-end, luxury amenities."
The report says many older buildings "are not suited to the needs of the modern workplace. Private offices are shrinking to make way for large, open collaborative spaces; bike racks and showers are needed more than parking spaces; sustainability, energy efficiency and multipurpose or outdoor spaces are becoming ‘must haves'."
Gerofsky agrees, citing the recent move of Coca-Cola Canada's head office from a suburban building "with poor air quality, surrounded by a big parking lot because everyone drove to work" to a downtown Toronto location with an open environment, including an outdoor terrace and a barbecue.
"And they took a whole lot of parking but within a year they got rid of it" because employees started taking public transit.
In another development, he said, "There are more bike spaces than parking, which was unheard of. The tenant told us to do that -- we didn't think of it."
Gerofsky said that although bench-style seating and open office spaces are popular, "people still like their privacy" and developers "have to balance privacy against the new open workspace" by providing some quiet areas away from the crowd. "If we don't get that right, we may have a problem," he says.
The PwC report says that in the Greater Toronto Area, "As demand continues to drive housing prices higher in the core…expect to see a growing number of people choose more affordable homes in the suburbs." These employees will be drawn to commercial workplaces nearby that offer similar amenities to downtown, such as restaurants and coffee shops, bars, fitness centres, banking facilities and convenience stores.
However, the report says "developers acknowledge that suburbs need more services, better tax incentives and lower operating costs to compete with the downtown core."
Kuzmicki told the NAIOP conference that suburban centres will develop around "nodes" that supply such services. "It's not the end of the suburbs."
Gerofsky agreed that many of the younger people currently living in downtown condos "will decide that 500 square feet isn't enough. As people age, they will want more space" for their children to play in, and may move back out to the more affordable suburbs.
Toronto-based Avison Young recently released a white paper that says "research has shown that reducing commuting times by promoting alternate types of transportation is good for a company's bottom line."
The report says "employees are as interested in balancing work-life priorities as they are in compensation. A big component of work-life balance is commuting, and the less commuting employees have to endure, the better their morale, overall quality of life and cost of living."
It suggests three ways that companies can save money and keep employees happier: By offering financial incentives to employees who use public transit or ride-share; by implementing a mobile work environment that allows employees to work remotely; or by relocating the office to a more transit-oriented development.
It says that paying for employee parking is expensive for companies and reducing it will produce cost savings. Having fewer people in the office or having them there for less time means the companies will need less space.
"Better space utilization translates into higher employee density per square foot," says the white paper. "At our own corporate headquarters in Toronto, we have been able to optimize space to an average of 150 square feet per person."
Kuzmicki said all the new changes to office space are supported by data that shows they produce more efficient working environments -- even those offices that are now allowing employees to bring their dogs to work with them and providing doggy day care.
"If the data said dogs don't contribute to the company's economic wellbeing, you wouldn't have dogs" in the office, he said.
Written by Jim Adair