Downtown cores across North America are enlivening, as the pandemic appears to be drawing to a close—although there’s plenty of trepidation about another wave of COVID-19 infections—but will they bustle like they used to?
The onset of the pandemic brought with it strong economic headwinds that resulted in interest rates plunging to historic lows, and by extension sparking a housing rush that spread to exurbs. Despite elevated activity in downtown condo markets, remote working configurations, whether part- or full-time, are here to stay and that obviates the need to live close to offices.
“Not everybody is going to go back to the office. Even if only 25% of the working population worked from home on a regular basis, that has a significant impact on what’s going to happen in some of the core centres,” said Patrick Francey, CEO of the Real Estate Investment Network (REIN). “There are lots of jobs you have no choice but to go into a location, particularly in the service sector, but for a lot of IT and tech and administration jobs, as we’ve discovered, you don’t need to be in your office.”
Deloitte surveyed 275 of its clients earlier this year and found that 67% of organizations were still conducting operations entirely remotely, while 64% intended to physically return to offices either fully or using a hybrid model that requires employees to be physically present a few days a week.
Although more than a third of surveyed organizations intended to retain the same office space they had in March 2020, 39% planned to reduce their footprint by 2022.
“Those planning for a hybrid strategy are 4.5 times more likely to expect a reduction in office space greater than 10%,” said Deloitte’s survey report.
The survey results bolster REIN’s claim, and Francey believes removing workers from downtown cores will affect rental demand. Downtown condos do offer a measure of affordability, which is drawing purchasers back in, but Francey anticipates that the quality of the tenant pool could suffer, at least somewhat, because most skilled jobs can be performed remotely. Consequently, that could influence how many doors condo investors decide to keep.
“People will always move towards affordability. As much as we’re seeing Toronto proper come back, we ask ourselves, ‘Why is that?’ Everyone moved out and smaller centres that used to be affordable grew, and now they’re no longer affordable, so in many regards people are going back to urban cores because there’s affordability, and with vaccinations, it’s not so risky anymore. But what if there is another lockdown this fall?” he asked, referring to the fact that a substantial portion of renters work in sectors that have borne the brunt of COVID-related lockdowns.
“There will always be individuals who, because of affordability issues, will always be renters, and right now in many regions there is a shortage of rental housing, but because of COVID and people not going back to the office, real estate investors are well advised to consider who their tenant profile is.”