We’re starting to see signs that 2024 will be the year that many workers finally return to the office, at least part-time. This return, stoked partly by a more competitive job market and by the arrival of corporate in-office policies, will reignite confidence among decision-makers and their employees to make big picture office decisions.
But will this return include Canada’s tech industry?
Some major tech players have recently said they plan to boost in-office work. While some like Shopify and Dell still offer remote work as an option, others like Zoom and Salesforce have made moves to mandate employees back into the office in a hybrid format.
We spoke recently with Eliezer Timolien, a senior research analyst with Colliers Canada, to discuss the prospects and challenges around Canada’s tech industry and the office market, and to explore the effects of elevated national vacancy, the venture capital situation, and other factors impacting tech jobs and workspaces.
How would you characterize Canada’s tech employment situation overall?
ET: During the pandemic, Canada’s tech industry experienced a hiring boom, but that’s eased off now and we’ve seen about a 20% reduction in overall tech employment nationally, especially among the tech giants.
The Canadian tech industry is in the middle of probably one of the most challenging financial or economic environments it has faced, causing a transitionary period for the sector. The current situation stems from a combination of company right-sizing, elevated interest rates, shifting work habits and general economic uncertainty.
Overall, I would characterize the tech industry as navigating the transition reasonably well with some companies looking to downsize their workforce due to these economic headwinds as others navigate the shift in work trends without shedding people. All of this has had a significant impact on office use, especially in our larger office markets.
That said, many tech companies are adapting. One of the ways they’re doing so is by adopting flexible work models. Trendsetters like Salesforce, for instance, are testing the waters by having employees come in part-time. In some cases, it’s not a full mandate, but more of an encouragement. Some tech decision-makers feel remote work is negatively impacting productivity and overall work culture and are starting to specify where and how they want their people to work.
Your team recently published a report assessing tech companies and the industry’s office occupancy activity in Canada. Were there any surprises?
ET: The situation in Calgary is one of the standouts from our report. Calgary has traditionally been a market driven by the energy sector and its related industries. This has contributed to a sort of boom-or-bust office cycle dependent on oil and gas production, but Calgary is now showing signs of diversification towards clean tech.
Over the last five years, there has been a 39% increase in VC into clean tech in Calgary.
As this market emerges as a hub for this type of technology, we’ll see more venture capital pour into Southern Alberta, and we could see Calgary emerge as one of the more competitive tech markets in Canada. The city’s elevated office vacancy could also prove to be attractive for other tech firms looking to set up, expand or relocate into the city’s under-used, high-quality office buildings, especially given cost-of-living issues in Toronto and Vancouver.
Once the tech industry starts to recover, will those companies return to the office or set up new offices?
ET: It’s tough to say for sure whether the tech sector can contribute to an overall rebound in office demand at the national level. Many decision-makers are still moving slowly as it pertains to making big office decisions and signing up for new, longer-term leases. That’s true of most sectors, including tech.
However, in our core office markets, we are seeing vacancy return to a sort of equilibrium and it could start to normalize as economic concerns and interest rates potentially ease in 2024.
By mid-year, I think many occupiers will have more solid footing on which to make key office decisions and affirm policies around in-office work that will provide certainty to workers. Hybrid work is still part of that discussion; it probably won’t go away. However, quite a few companies are really thinking about how they’re going to get their employees back into the office and having first-class, highly amenitized office spaces in attractive, convenient locations will have to be part of the strategy.
It will be particularly interesting to see where tech companies ultimately land on in-office policies. It was initially believed that they were already primed and tooled for remote work, but in 2023 we already started to see larger tech firms making definitive policies around return-to-office and we’ll continue to see some of the larger firms drive the industry towards a more specified hybrid approach.
How would you assess VC investment in the Canadian tech scene right now?
ET: It’s important to keep things in perspective here. During the pandemic years of 2020 and 2021, there was a tech investment frenzy. (There was also a hiring boom that resulted in too many companies building oversized staffs).
Today, we’re seeing VC funding returning to pre-pandemic levels; so in a sense, it’s normalizing.
By the third quarter of 2023, the tech sector had raised $3.8 billion through nearly 500 deals in Canada. Of that, about $1.7 billion went into artificial intelligence and machine learning projects. Meanwhile, the VC landscape continues to evolve and is being driven by more cautious investors looking more towards companies that can demonstrate profitability. In that sense, they’re trying to look for late-stage companies and invest in those as opposed to earlier-stage firms, for the time being.
The mobile and life sciences sectors are other potential bright spots for VC this year as we anticipate growth in those industries, as well as investments in clean tech.
Does the arrival of more AI-related business mean many of these new companies will be taking more office space in Canada?
ET: While it’s clear that AI is driving plenty of tech investment and projects, it’s less clear whether this investment will result in companies or businesses that will require more office space, helping to absorb our current vacant space.
Most tech companies are developing or finding ways to inject AI into their existing business streams and models, so AI could end up being a more general tech movement that shifts how other companies outside of the tech sphere operate.
For instance, last summer, a couple of big brokerage firms announced that they would soon be implementing AI tools in their overall business model to improve their client services.
AI could prove to be a stimulant for the overall tech market and as this sector grows, evolves and strengthens, it’s reasonable to expect that it will want and need more work space, especially on the flex-office side.
With office supply-demand conditions in most cities now leaning towards tenants, is there an opportunity for tech firms to take advantage of the availability of top-level office space?
ET: Canada’s national office vacancy is around 14%. Our strongest markets, Toronto and Vancouver, are now facing downtown vacancy above 10%, while Calgary is dealing with vacancy around 28%. While obviously challenging for owners, the elevated vacancy spells opportunity for all tenants, including tech businesses. Many landlord offerings now include model suites and favourable incentives to help drive activity in properties. We’re seeing a flight to quality and the market has shifted in favour of companies interested in setting up, relocating or expanding.
However, some of the data from our Canadian Tech Occupiers’ Guide suggests that tenants were even willing to move into mid-grade spaces within the core of many of our leading markets. This moment represents an opportunity for tech firms to settle in at locations that are relatively well-fed with major transportation hubs and transit networks and are relatively close to where all the action is.
A general expectation was that tech firms would push for remote work given the nature of their business and tools, but we’re seeing major players leaning towards having workers spend more time in offices that are collaborative, exciting, accessible and culture-building, even one or two days a week.
While there remains much uncertainty around how the tech sector will approach office strategies, there is plenty of opportunity for these companies to take up space in prime locations, should they embrace an in-office arrangement.