As more and more companies enact return-to-office mandates, premier office spaces are becoming more scarce, according to a new report.
A recent report from Colliers shows downtown Toronto’s AAA vacancy is now only three per cent, compared to Vancouver which is now 4.9 per cent.
Class A buildings are typically classified as buildings with higher quality and offer a variety of amenities, according to Colliers.
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Nicholas Kendrew, Senior Vice President of the Office Investment Group at Colliers, calls this a “flight to quality” that many companies are parking in as a result of return to office mandates.
“There’s sort of a bargain between employers and employees that if we’re going to ask you to come in, we’re going to provide you a very high quality of space to accommodate you, to make it more attractive for you to come back into the office,” Kendrew said to Now Toronto on Monday.
In Toronto’s case, Kendrew says most AAA classified office buildings are typically located next to Union Station, which makes them an ideal fit.
“A lot of corporate employees are commuting from outside the city using GO Transit. So I think there really is a premium as well for properties that are located with very close proximity to Union Station,” he said.
In recent weeks major banks like RBC, Bank of Montreal, Bank of Nova Scotia, TD have said they will have their employees back in office four days a week by fall.
According to Colliers, this will encourage other companies to spend more time at the office, since banks are seen as “trendsetters.”
“The FIRE sector, meaning finance, insurance and real estate companies, will follow, and we’ll see occupancy tick up,”Daniel Holmes, President of Brokerage, Valuation & Advisory Services said in a report.
However, as more companies return to the office, Kendrew says that a supply crunch could soon approach, making it harder for companies that are not returning to office to do so in the future.
Kendrew says there already isn’t a lot of space available in AAA class buildings.
“The first movers will definitely have an advantage,” Kendrew said. “If you decide 12 months from now then the space that is available for those people will probably be less than desirable in a location that will be difficult to get to.”
However, looking forward, Kendrew says that suburban office locations may benefit from this changing market despite previously being looked down upon, due to more people moving out of the city.
“They’ll almost be like outposts for some of these companies.. maybe there’s some employees that live in Milton that they really want to retain, but they don’t want to commute downtown daily,” he said.