Empty offices left behind by newly minted remote workers and other upheaval caused by the pandemic have begun to show up on the rental market, and it’s presenting some prospective tenants with opportunities they couldn’t have imagined prior to COVID-19.
“They’re getting the red carpet rolled out,” said Darren Fleming, an Ottawa-based commercial real estate broker.
It’s almost a year into the pandemic, and Fleming and his team at Real Strategy Advisors are seeing companies that were on the fence about what to do with office space that’s been sitting empty now starting to downsize.
“It’s to either get rid of about half their space or go [fully] virtual,” said Fleming, the firm’s CEO.
That’s an even bigger shift than he expected just six months ago, when he estimated clients would shed about 25 per cent of their space.
WATCH | Pandemic has led to slump in demand for office space, broker says:
But for those clients who are looking for new space, Fleming says they have an “unparalleled amount of choice” and the potential to land incentives such as free rent for one year.
“If you’re a tenant looking for space right now, there’s a whole lot of people who don’t have a lot of alternatives to rent to,” he said.
Michael McNaught and his growing team at RVezy, an RV rental marketplace company, are prospective tenants seeing the market change first-hand.
In March 2020, McNaught was about to sign a lease for new office space in Ottawa, but then the pandemic hit. RVezy sent all of its staff home to work remotely and put the lease-signing on hold.
Since then, RVezy’s business has doubled and its workforce has nearly tripled from about 20 employees at the start of 2020 to 55 now, with plans to keep hiring.
“We just happened to be one of the fortunate businesses that was well suited during this pandemic,” McNaught, the company’s co-founder, said.
Now, RVezy is on the search for office space again — and it’s not just the company’s needs that have changed.
“Pre-pandemic, it was a much more difficult [rental] market. We had probably four to five options that we were looking at. At this time, it’s really endless,” McNaught said. “There’s so much available in all areas of the city and even different types of spaces. We’ve seen anything from office buildings to old firehouses to even a yoga studio.”
Office availability on the rise across Canada
According to Altus Group, which collects data on commercial real estate transactions across the country, office availability in Ottawa increased from 8.8 per cent in the last quarter of 2019 to 10 per cent in the fourth quarter of 2020.
Other cities have seen even bigger jumps over the same period. In Toronto, office availability rose from 8.7 per cent to 12.4 per cent, while in Vancouver, it increased from 5.9 per cent to 9.1 per cent.
Raymond Wong, vice-president of data operations and data solutions at Altus Group, characterizes the difference in availability in Toronto from pre-pandemic to now as “night and day.”
“That’s why [the city has] close to nine million square feet under construction right now in the downtown to facilitate that [pre-pandemic] pent-up demand,” Wong said.
For more than five years, Toronto has had the most construction cranes in operation in North America, according to international construction cost surveyors and consultants Rider Levett Bucknall (RLB). The firm is set to release its latest crane index ranking later this month that it says will show Toronto is still at the very top.
In the first quarter of this year, RLB says, 208 cranes have been in use in Toronto, with 19 involved in commercial construction. But the firm suggests that could be impacted by the working-from-home trend.
“With companies reconsidering the traditional model of the office — some have already committed to permanent remote working — going forward, we may see a decreased demand for commercial space in the city,” Terry Harron, principal and resident manager of RLB’s Toronto office, said in an email to CBC News.
As some tenants in commercial office space already try to shed square footage, listings website Spacelist.ca is seeing an increase in the total space available for sublease.
Spacelist Commercial Listings, founded in 2012, aggregates commercial real estate listings from brokerages, property management groups, owners and third-party property marketing platforms. It tracks real-time data from active listings and demand from those searching for space.
According to its data, Spacelist says total office square footage listed for sublease in 2020 compared with 2019 increased by 230 per cent in Edmonton, 400 per cent in Vancouver and 524 per cent in Toronto.
More than half of tenants expected to downsize: survey
For a prospective tenant, a suitable sublease can be valuable, as it can take over a space that has already been renovated for similar needs or even furnished.
Steven Jaffe, CEO of Spacelist, says despite the pandemic and the growth in working remotely, there is still demand for office space.
“In fact, there may even be increased demand. [But] the differentiation from pre-pandemic is the type of demand,” he said.
“Instead of one 10,000- or 5,000-square-foot office in downtown Toronto, they may be looking for 1,500 square feet downtown and then a smaller one out in the suburbs — or maybe two, closer to employees.”
What the future of work looks like is still in flux for many, and according to Altus Group, it may be less drastic than some had suspected last spring.
“The expectation back then was that, ‘why do we need office?'” Wong said.
In November, Altus Group conducted a survey of 85 clients from across Canada to get a sense of whether they still expect tenants to downsize and by how much.
The survey found that 57 per cent of the respondents expected their tenants to downsize, but 62 per cent anticipated space needs would decrease by just 20 per cent or less.
It’s a small snapshot of landlord expectations, not tenant intentions, but Wong still finds the results interesting.
“That’s a big shift,” he said.
Wong suspects it’s a result of waning productivity, Zoom fatigue and the expectation that people will want to come together again to work collaboratively.
“I still believe that … when people feel safe again with the immunization and the vaccine, the office will return,” he said.
Landlords offering incentives
But it will likely look very different, according to Fleming of Real Strategy Advisors.
“There’s going to be a huge amount of capital required to transition these spaces into these hybrid hub models,” he said.
“We’re going to need to lean on technology more than we did before: screens, better cameras, better audio, better bandwidth to make sure that those people [working from home] are included and don’t feel isolated.”
Fleming said he’s seeing landlords offer incentives such as cash to cover renovations to create custom spaces, in order to lock in new tenants.
Wong said rental prices haven’t changed substantially, but that could start to change depending on how long the office availability rate stays high.
Michael McNaught of RVezy said that during his renewed search, landlords have been far more flexible now than prior to the pandemic on lease terms such as rental price and including extras such as more parking spots.
“Everything’s on the table in these negotiations right now,” he said.
WATCH | Growing Ottawa business finds options for office space:
And while the allure of downtown may be fading for some, McNaught said RVezy is still interested, and he’s confident his employees will still want to be in downtown Ottawa with access to restaurants, coffee shops and culture.
“No one’s going to forget what pre-pandemic life was like,” he said.
Credit Suisse stops custodian service for some U.S. cannabis stocks
By Shariq Khan and Matt Scuffham
(Reuters) – Credit Suisse Group AG has told customers in recent months it will no longer execute transactions in shares of cannabis companies with U.S. operations or hold them on behalf of clients, a cannabis company executive and other industry sources told Reuters on Wednesday.
The Swiss lender was among a handful of banks that had been willing to buy and sell marijuana-related stocks for clients in the United States and hold those shares as a custodian.
Credit Suisse declined to comment.
Cannabis remains illegal under U.S. federal law, even though many states have legalized its use. This represents a legal risk for investment banks working for companies that produce or trade the drug.
Credit Suisse’s compliance and risk management procedures have come under scrutiny from investors and analysts after it lost at least $4.7 billion from the collapse of Archegos, an investment firm dedicated to managing the fortune of hedge fund veteran Bill Hwang, as well as the suspension of funds linked to insolvent supply chain finance company Greensill.
The MSOS exchange-traded fund, which tracks U.S. marijuana stocks, has fallen by more than a fifth since early February. Several market players said they believed Credit Suisse’s actions played a role in the selloff.
“(When) Credit Suisse pulled custodian (services) on cannabis stocks, a number of large investors in the space lost their ability to custodian the stocks,” said Abner Kurtin, Chief Executive Officer of newly-floated marijuana grower Ascend Wellness Holdings Inc.
“That led to a significant selloff.”
A custodian bank holds customers’ securities for safekeeping, to prevent them from being stolen or lost, while also collecting dividends and handling other corporate actions. It plays an important role in helping many investors to hold shares in companies.
The weed industry has boomed over the last three years, as Canada and a succession of U.S. states, including most recently New York and New Jersey, legalized recreational use.
Credit Suisse shares are down over 20% so far this year, and the bank has said it is cutting its prime brokerage business, which caters to hedge fund clients, by about a third.
(Reporting by Shariq Khan and Matt Scuffham; Writing by Patrick Graham; Editing by Howard Goller)
Sun Life’s misses first-quarter profit estimates
TORONTO (Reuters) – Sun Life Financial Inc on Wednesday missed analyst estimates for first-quarter core profit, which rose from a year earlier due to business growth and earnings in its asset management and Canadian units.
Underlying profit was C$850 million ($693 million), or 1.45 Canadian cents a share, in the three months ended March 31, from C$770 million, or C$1.31, a year earlier. Analysts had expected C$1.46 a share.
Reported net income jumped to C$937 million, or C$1.59 a share, from C$391 million, or 67 Canadian cents, a year earlier.
($1 = 1.2266 Canadian dollars)
Manulife, Sun Life post improved first-quarter core profits on business growth, investments
TORONTO (Reuters) – Manulife Financial and Sun Life Financial Inc on Wednesday reported increased core profits from a year ago, driven in part by business growth and improved earnings across all major business units.
But while Manulife beat analyst expectations for the quarter ended March 31, Sun Life missed estimates.
Payouts globally have risen due to claims related to the coronavirus pandemic, but strength in stock markets has helped soften some of that impact. Earnings of Canada‘s top two insurers were affected by steepening yield curves in North America.
While it tempered Sun Life’s results, the No. 2 insurer still saw reported profit more than double from a year ago as a result of favourable equity markets and interest rate changes.
Sun Life also took an after-tax restructuring charge of C$57 million related to changes it is making to its workspace, the company said.
Manulife reported core earnings of C$1.6 billion ($1.3 billion), or 82 Canadian cents a share, in the three months ended March 31, from C$1 billion, or 51 Canadian cents, a year earlier. Analysts had expected 77 Canadian cents.
Reported net income attributable to shareholders declined to C$783 million, or 38 Canadian cents, from C$1.3 billion, or 64 Canadian cents, a year earlier.
Sun Life reported underlying profit of C$850 million ($693 million), or 1.45 Canadian cents a share, in the three months ended March 31, from C$770 million, or C$1.31, a year earlier.
Analysts had expected C$870.8 million or C$1.46 a share.
Reported net income jumped to C$937 million, or C$1.59 a share, from C$391 million, or 67 Canadian cents, a year earlier.
($1 = 1.2277 Canadian dollars)
(Reporting By Nichola Saminather; Editing by Chris Reese and David Gregorio)
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