'Office space is going to evolve': Why brokers remain bullish on the future

l'esplanade laurier
Aging government office complexes such as L’Esplanade Laurier could soon be on the block, a federal official said last fall. File photo

For all those who believe Ottawa’s office towers are destined to become nothing but hollowed-out shells as the city emerges from the pandemic, Mike Church has a pile of documents he’d like to show you.

“Office space is not dead,” says Church, the managing director of commercial real estate firm Avison Young’s Ottawa operations. 

As proof, the veteran broker cites the growing stack of open files on his desk – now numbering close to two dozen – that include sale and lease agreements in various stages of completion. 

If commercial real estate is no longer in demand, Church says, the market has a funny way of showing it.

“I think people have finally woken up to the fact that life is going to go on and eventually we’re all going to get back to (the office) in some fashion,” he says. 

With the future of the office a hot topic everywhere as employers around the world grapple with what workspaces will look like post-pandemic, Church and other local industry observers say that while office space is here to stay, it will likely be configured very differently once people start returning to their cubicles.

As an example, Church points to a client that initially planned to ditch a hefty portion of its office footprint before deciding to retain it all and redesign it to allow for greater physical distancing and other health and safety measures.

'Opportunity to reimagine everything'

“The use of office space is going to evolve over time,” explains Church, adding that companies will likely invest more money in upgrading HVAC systems and installing technology such as virus-killing UV systems as they retool buildings for a post-pandemic world. “COVID has been an opportunity to reimagine everything.”

Shawn Hamilton, vice-president of business development at Canderel Group’s Ottawa office, is equally bullish on the local office sector’s prospects.

“There’s no reason for us to abandon the optimism that we had going into the pandemic,” he says.

"I think having some space freed up by the federal government is uncomfortable because it challenges our comfort zones, but I think it creates oxygen for the private sector and the urban technology sector to thrive."

Companies were already moving toward a hybrid work model that saw workers split their time between home and the office before COVID hit, Hamilton says, and the health crisis simply shifted that process into high gear. 

The former commercial real estate broker says when cornerstone tenants such as the federal government downsized in the past, other clients such as Ottawa’s burgeoning tech startups picked up the slack. He believes history will repeat itself this time.

“I think having some space freed up by the federal government is uncomfortable because it challenges our comfort zones, but I think it creates oxygen for the private sector and the urban technology sector to thrive,” Hamilton says.

Indeed, the industry is keeping a close eye on the federal government’s plans for 37 million square feet of office space it owns and leases in the National Capital Region.

While the region’s largest tenant has no secret about reducing the amount of space it plans to occupy in the coming years, Hamilton doesn’t think that will spell doom and gloom for local landlords.

Many buildings in the feds’ own 19-million-square-foot portfolio are either nearing the end of their lifespans or are in dire need of costly overhauls, he notes, which could create new opportunities for other building owners as the feds seek new homes for workers. 

Carbon-neutral push

In addition, the government has suggested it might put aging, energy-inefficient properties such as L’Esplanade Laurier on the block in the near future, providing potential new avenues for redevelopment in the downtown core.

“I think there are real opportunities there,” Hamilton says. “I think L’Esplanade Laurier is the tip of the iceberg.”

As the feds push to hit a target of 75 per cent of their leased properties being carbon-neutral before the decade is out, landlords need to act now to ensure their buildings are eco-friendly, he says. 

At the same time, owners of buildings with a mix of government and private-sector tenants will have to weigh whether pricey retrofits are worth it if it means passing on those costs to occupants that might balk at paying higher rents.

“That discussion hasn’t happened yet, and it’s a discussion that has to happen,” Hamilton says.

The feds have also suggested that how government office space will be parcelled out could change dramatically as a hybrid work world becomes the norm. 

Stéphan Déry, the assistant deputy minister for real property services at Public Services and Procurement Canada, said last fall he envisions a future where workers are no longer required to commute from the suburbs to central offices in the core. 

Déry imagined a scenario in which the feds set up a “network” of satellite offices across the country, where civil servants can drop in and share space closer to their homes in the suburbs.

Hamilton says the “hub-and-spoke” model “makes a lot of sense,” adding it meshes well with urban planners’ goals of creating more walkable “15-minute neighbourhoods.”

Residential conversions?

“It allows people to have an option to work from home, closer to home or at the mother ship, which I think spreads out development across the city,” he says.

Ultimately, Church believes Ottawa’s office market will go through “a bit of a transition” as landlords and tenants adjust to a post-pandemic world. 

For example, he expects more and more owners of aging properties will consider converting them into residential complexes, the approach InterRent REIT is taking with the 50-year-old Trebla Building at 473 Albert St.

But he’s not buying the prediction of Shopify CEO Tobi Lütke, who declared “office centricity is over” when he announced early in the pandemic that the e-commerce giant was moving to a virtual-by-default work model.

“I think at the end of the day we’re going to be leasing probably the same amount of office space,” Church says. “It’ll just get configured differently. This, ‘Oh, we’re going to lose 50 per cent of it’ – not a chance.”