Downtown offices will survive, but with smaller square footage and multipurpose use.
Before COVID-19 even hit, a movement towards working from home became more mainstream, and businesses were buying smaller office spaces in the city. Probably to help balance out their checkbooks and the outrageously high cost of rent in the city. So the burning question remains, what will happen to commercial real estate in the city? Will 40-story office towers stay put, or will commercial buildings become multipurpose? Will corporations move out of the city? We have insights from Toronto commercial real estate expert Roelof Van Dijk. Keep reading to find out.
Toronto commercial real estate analyst spills the beans.
Roelof Van Dijk, the head analyst at CoStar real estate analytics company, predicts businesses will still lease commercial spaces, but at lower square footage to save on the monthly rent expense. According to TREB, the number of deals for office space over 100,000 square feet from Q1 to 2020 to Q1 2019 declined.
Downtown offices will function more like co-working spaces where employees and teams will come on specific days and share their time working remotely at home and in the actual corporate office downtown.
New buildings will be in demand to lease over older ones.
He believes many companies will be looking to buy commercial office space in new buildings with high-quality ventilation systems and fast, efficient elevators. There is some preliminary evidence that you can transmit the Coronavirus through the air, so business owners will be looking to build their business in the safest location. Efficient elevators will speed up rides when social distancing measures are in place.
Office subleases flooding the downtown market.
The majority of the commercial leases on the market are subleases at the moment in downtown Toronto. The rise in rent prices also doesn’t help the case for businesses to remain downtown. According to a real estate company specializing in commercial properties, they have seen a rise in vacant offices in the downtown core. Many companies struggle to sublet their costly office spaces. The lower rent costs and lower density in the North East suburban area of Toronto, make that area more appealing for the time being, especially with social distancing metrics in place.
Retail locations and office spaces will need to become multipurpose to survive and thrive.
The combination of the rise of online shopping and COVID-19, causing stores to file for bankruptcy or Chapter 11, has left shopping malls barren. Economists predict that they will likely stay this way for a while, especially with social distancing measures. There is no practical need to go into a physical retail store, as you can purchase the same products online with less effort and save time. Malls who adopt multipurpose real estate will have the best luck surviving, a combination of residential real estate, food courts, restaurants, and office space.
Retail and office will struggle, but industrial real estate is on the rise and thriving.
With the growing e-commerce market, the demand for more warehouse space will be on the rise. Online stores need 3 square feet of warehouse space versus regular retail stores that only require 1 square foot. Online shoppers are 30% more likely to return their purchase, whereas retail shoppers only return goods to the store about 8% of the time. The larger square footage required for an e-store creates a need for more warehouse space to stock inventory, and allow space for returns and overflow.
If you’re looking to make a real estate investment, industrial properties may be a great area to start. The growing need for warehouse space and the domestic supply chain industry growing in Canada will create demand for industrial property. Commercial office spaces will still be purchased, but at much lower square footage and retail spaces will be turned into multipurpose units. The world of real estate is shifting and will only continue to surprise us post-covid19.