Increasingly stringent return-to-office policies may translate into more demand for premium office space in Canada, says a national real estate firm.
Colliers Canada wrote in a July 24 blog post that “the dominoes in the return-to-office movement in Canada continue to topple” and that “as more companies set in-office policies, rising demand will gobble up limited AAA office space.”
The post cited new four-day in-office policies by Toronto-Dominion Bank (TSX:TD) and Royal Bank of Canada (TSX:RY).
RBC acquired HSBC Bank Canada in a $13.5-billion deal that closed last year, absorbing the Vancouver-based financial institution’s workers and office space.
TD said in a statement to BIV executives in its hybrid model will come in a minimum of four days per week starting on Oct. 6, followed by non-executives on Nov. 3, with some phased-in transitions by region or business. RBC also confirmed it has asked employees to be in office four times a week starting in September.
Banks are “trendsetters” that rely on workplace consultants and are watched closely by other companies, and it won’t take much additional office usage to squeeze trophy asset space, the Colliers blog post said.
“For those companies that want their people back in the office, the best carrot is having a well-located, functional, flexible and comfortable workspace,” the blog said.
Adam Jacobs, head of research at Colliers Canada, said employers increasingly have the upper hand in the labour market, unlike during the pandemic when many positions were unfilled and employees could demand remote or hybrid work.
He said the rising national unemployment rate, which was 6.9 per cent last month compared with 6.4 per cent in June 2024, is another reason why employers may feel emboldened.
“The unemployment rate creeps up … and then I think employers feel a little more comfortable saying, ‘I’m going to push on this and I'm a little less afraid all the employees are going to quit on Monday morning,’” he said.
The net result may be greater demand for office space in Canada, Jacobs said, particularly for top-tier assets such as Oxford Property Group’s The Stack and BentallGreenOak’s B6 in Vancouver.
Not every building offers a high level of services and amenities, however, resulting in a squeeze at the top end of the market, he said. Even the possibility of new AAA towers if large anchor tenants pre-lease a large number of floors.
“That’s very difficult to do in the best of times, but I think we might actually be reaching a point where that’s possible,” Jacobs said.
“You are starting to hear some rumblings.”
Jacobs said it’s not just high-end towers that are seeing strong activity—middle-tier assets are also poised to benefit.
“People need to be somewhere, and if the AAA stuff is full, I think it could actually be a very good 12 months for the leasing and filling-up of these somewhat less-in-demand [assets],” he said.
The AAA vacancy rate for Vancouver’s downtown core was 6.3 per cent in the second quarter of this year, according to Colliers. It was 11.9 per cent for A product, 14.6 per cent for B product and 16.4 per cent for C product, with rates varying elsewhere in the city.
While there are no universal standards, Colliers defines AAA or “trophy” offices as those with elements like iconic architecture, premium finishes, cutting-edge building systems, concierge services and ample amenities. They tend to be in central business districts close to transit and occupied by major tenants with strong credit ratings.
Class A, B and C are lower on the scale in terms of age, quality, location, infrastructure and condition, though each category has its own use case and intended tenant types, according to Colliers’ definition.
“There’s just a huge demand for that really premium office, and it’s tied to return-to-office. We need to give the employees a better experience. It can’t just be grey cubicles,” Jacobs said.
