Why Toronto workers are never going back to the office full time

أخبار الأقتصاد - الوطن نيوز13 مايو 2023آخر تحديث :

وطن نيوز

Empty offices, commuting chaos, impossibly pricey real estate. Can the post-pandemic downtown be saved? In this ongoing series, we examine the fate of the ailing city core and what it will take to thrive again.

“We’ve always done it that way,” has never made sense to Tara Vasdani.

She was the first lawyer in Canada to serve legal documents over Instagram, urged the law firms she worked for to adopt artificial-intelligence technology for legal research (“But what will the junior lawyers work on?” came the reply from the managing partners), and even questioned the value of those art-filled, expensive office spaces.

Vasdani realized she was commuting to downtown Toronto every day only to hide in her office with the door shut to get work done. “If I ever left the office, it wasn’t to engage with the people on my team,” she says, recalling sneaking out to Pilates classes or lunches with clients.

So when she founded her own civil and employment law firm, Remote Law Canada, she went remote from the start, maintaining a downtown address “essentially just to receive mail.”

Then, just a few months later, the pandemic hit — and Vasdani watched with fascination as “a new type of worker emerged.”

When hundreds of thousands of tech workers, bankers, lawyers, accountants and consultants poured out of Toronto’s downtown towers and went home in March 2020, they left behind more than their office cardigans, gym bags and framed family photos. The abrupt exit also marked an end to the widespread acceptance that office work has to be (mostly) done in person.

And now — for reasons that range from the nightmare of commuting in this city to the yawning gulf between what some bosses are demanding and what workers are willing to give — it’s become increasingly clear that most of Toronto’s financial district workers are never going back to the office five days a week.

Instead, the pandemic has supercharged a trend that had been quietly underway since the BlackBerry first untethered workers from their desktop computers. Now, most downtown employers are embracing a hybrid approach of asking workers to report the office once, twice or three times a week, and that’s already had a profound impact on the businesses and buildings in Toronto’s downtown core.

On Mondays and Fridays the Bay Street bustle is largely gone. The PATH, the underground network of retail shops and food courts, is littered with vacancies and scrambling to adapt, with special exhibitions and high-end luxury shops where makeup stores and mass-market clothing stores used to be. Power lunches still happen at restaurants like Jump and Ki, but now they’re mainly relegated to Tuesday through Thursday.

Above ground, the financial towers are more than half empty now, and their very purpose is, for the first time, being questioned.

It all began with workers going home temporarily — no one really thought it would last more than a few weeks — but it has become a permanent change, one that will transform the heart of Canada’s largest city.

There’s no going back

Office workers play a huge role in the makeup of Toronto’s core: of the almost 600,000 employees working in the downtown centre in 2022, data collected by the city shows that 70 per cent were in the office category. But since most COVID mandates were lifted in the first half of 2022 (after some of the longest lockdowns in the world), many of the high-speed elevators waiting to usher those workers back up the towers have been largely empty.

Office occupancy has been generally trending upward for about a year since restrictions eased, according to an index created by the Strategic Regional Research Alliance (a data tracking project supported by a city-boosting alliance that includes all the downtown business improvement associations). Yet, at 47 per cent, on average, as of April 15, the daily foot traffic in downtown office buildings still isn’t even half of what it was before the COVID lockdowns hit.

Downtown foot traffic (as tracked by data from cellphones) seems to be recovering more slowly in Toronto than most other cities. The city ranked 55th out of 63 North American cities as of this February, according to the University of Toronto’s School of Cities. At 47 per cent, Toronto was the lowest of all Canadian cities on the list.

As a result, businesses have already cut back dramatically on space: the vacancy rate for downtown Toronto office space hit 15.3 per cent in the first quarter of 2023, according to commercial real estate firm CBRE, the highest it’s been since 1995. Before COVID, it was just two per cent.

That vacancy rate is expected to go even higher. As leases come due, many companies are tacitly admitting their workers are never coming back full-time by downsizing or moving to smaller spaces that couldn’t accommodate everyone even if they did want to return. In January, a Colliers survey of its commercial real estate clients found 62 per cent of companies say they plan to operate under a hybrid model going forward.

Still, some companies, particularly Canada’s big banks, are pushing for more face time in the office. RBC CEO Dave McKay said in March that he wants to see employees at work in person three to four days per week, citing a loss of productivity when teams don’t “come together with a shared sense of belonging and purpose.”

But skeptical employees, who see such calls as out of touch and paternalistic, are pushing back, and even willing to take their labour elsewhere.

“Once people started working from home, they realized that there was tremendous balance in their lives and they preferred it,” says Anne Thornley-Brown, a Toronto consultant whose company, Executive Oasis International, specializes in team building. Introverts appreciated a break from the forced socialization, she says, while some racialized workers enjoyed the break from the microaggressions they often face in person.

A century-old song about soldiers returning to the home front after the First World War makes for a pretty good analogy for the reluctance to go back to the office, Thornley-Brown says, quoting the once-famous tune.

“How are you going to keep them down on the farm once they’ve seen Paris?”

A brutal commute

Toronto’s commute, one of the longest in North America, is a major factor in office workers’ reluctance to return regularly, says prominent venture capitalist John Ruffolo.

“The cities that had the longest commute time are struggling to get their folks back,” says Ruffolo, founder and managing partner of Maverix Private Equity. “And here in Toronto, the number one issue for the tech community is the commute time. And they can’t get people back.”

The average one-way commute in the city was 56 minutes last year, according to a report by Moovit, which collects data on commutes through a transit app.

Of all the major cities in Canada and the U.S., that put Toronto behind only New York City (the “winner” at 58 minutes), Washington, D.C., and Chicago. Even L.A.’s famous congestion is more bearable than Toronto’s traffic (average commutes in L.A. came in at 52 minutes).

Driving is an exercise in frustration, with Lake Shore Boulevard torn up for long-term repairs to the Gardiner Expressway, and it’s about to get worse as the city shuts down key intersections for Ontario Line construction.

Two workers walk to Bay and King in the usually bustling heart of the Canadian financial district.

Meanwhile, the city is cracking down on e-scooters, bike lanes are under constant political attack, and delays seem to be standard operating procedure on the TTC, where riders also have mounting safety concerns after a string of unprovoked and violent attacks in recent months.

Ruffolo recently took a stake in the startup Just Boardrooms, a kind of Airbnb for hotels, offices and restaurants that lets them offer their empty or underused meeting spaces on a short-term basis.

The options include boardrooms in areas outside of the downtown core, which can be appealing to new companies that never opened an office in the first place, he says.

Ruffolo himself still believes in the value of in-office time (his firm has a mandatory in-person meeting every Monday and expects employees to come in two additional days), but he says the Just Boardrooms startup is “taking advantage of the fact that we will never go back to the old way.”

“People are realizing they still need places to meet but they don’t want to drive downtown.”

‘Middle-class squeeze’

“Is working from home really working?” That was the question posed by Steven Rattner, a former Obama adviser and current New York City finance executive, in a March op-ed on remote work in the New York Times.

Rattner wrote that he’d heard from many (unnamed) CEOs that working from home is simply not productive; it doesn’t work for “those who want to hustle,” he said, quoting JPMorgan head Jamie Dimon, and it’s virtually impossible for employers to keep tabs on their far-flung workers.

The column was met with immediate backlash on Twitter (where the general sentiment was, “did a CEO write this?”). In a response published by Slate, Ben Mathis-Lilley brought up the concept of the “middle-class squeeze,” detailing all the costs tied to in-office working that are increasing with inflation — while workers’ pay hasn’t budged.

Transit fares and gas bills, takeout coffees, lunches, professional clothes and dry cleaning, plus child-care spending for workers with kids — they all add up to thousands of dollars per year. In the past, employees sucked those costs up, but many are no longer willing to do so after seeing the alternative.

Shortly after the Rattner column, RBC’s McKay announced his own plans to get bank employees into the office more often, sparking similar reaction on Twitter, LinkedIn and Reddit threads. (RBC declined interview requests for this story.)

One downtown financial industry worker who spoke with the Star says he and his wife bought a modest house about 90 minutes from the city during the pandemic, unable to afford anything in Toronto’s real estate market. (The Star is not naming him because he fears frank comments on this topic could hurt his career.)

He’s comfortable commuting about one day per week for a meeting or two, but figures it costs him between $50 and $70 each time, when you factor in the GO train tickets, gas money (to get to the GO station), food costs and more. And it’s all “just for the privilege of going in and being less productive.”

If his employer demanded he come in more often, he says those costs would be a major factor in his next salary negotiation. He says he sees the value in meeting in person regularly, but if his boss asked him to come in four or five days a week, he would look for work elsewhere.

“Now that I experienced how productive and how much better my life can be working from home, I’m never going back to five days in the office,” he says. “Anyone who tells me to do that is telling me to be less effective as a worker, to be more miserable and to spend more money.”

The productivity lie

And about that productivity argument? Many employees just don’t buy it, says Chris Ford, president of Intelliware, an IT services and consulting company with about 115 workers based in downtown Toronto.

“Show us the data,” he says of the assertions made by some business leaders, such as McKay, that not working together in person reduces creativity and innovation. “Canadian banks have prospered over the last few years. So if they have data that supports that (drop in productivity), they should share it.”

One of the most-cited reports on remote work and productivity, based on a pre-pandemic study of a Chinese travel agency led by Stanford economics professor Nicholas Bloom, found that call centre workers who worked from home four days per week were happier and their performance was better than those who worked in office all the time.

Ford says his company works regularly with the banks, and the impression he gets from speaking with financial industry employees is they are suspicious about why exactly their bosses want them back in more often.

“They don’t necessarily believe the corporate mantra which is that, ‘It’s important to our culture, for mentoring and professional development, for innovation,’ ” he says. “But workers think things like: the government is pressuring (the banks) so that the downtown businesses can be supported, or that management secretly believes they’re not really working from home.”

Some also suspect the highly influential banks want to spur a broader return to the office to help shore up the commercial real estate business, which makes up a huge chunk of their loan books (about 10 per cent) and is a major pillar of the Canadian economy. Financial analysts are warning the plateauing of return-to-office numbers could lead to a reduction in demand for office space by something in the range of about 20 per cent compared to 2019, seriously denting bank profits.

As long-term leases come up for renewal in the coming months and years, businesses with hybrid work policies are likely to opt for less space. (Some urban thinkers see an opportunity here to use buildings in new and creative ways, including by converting some office space to housing).

Whatever may be behind the push at some companies to mandate increased attendance, there’s a tension between many workers and their bosses that didn’t exist before.

“(RBC) may find that the employee pushback is consistent and negative and that it actually hurts productivity, because you’re breaking trust with employees who don’t feel that the business is willing to do the right thing for them and doesn’t trust them,” Ford says. “It’s a terrible basis for relationships.”

Workers ready to walk

When it comes to the nuclear option of return-to-office policies, most companies aren’t actually going to fire people for not coming in.

Consulting company Gartner, which has regularly been surveying U.S. employers on back-to-office plans, estimated last fall that a meagre three per cent of businesses would take that approach.

Workers are less likely to back down in this particular game of chicken: a significant portion of employees say they’d be willing to quit over strict return-to-office policies.

According to an Angus Reid Institute online survey of more than 1,600 Canadians in February, when faced with the demand to come back to the office full time, 31 per cent said they would comply but consider looking for a new job, while 21 per cent said they’d be likely to quit or look for a new job right away.

In one recent high-profile example of this, long-time Fifth Estate broadcaster Gillian Findlay said she left the CBC after failing to come to terms on a remote work arrangement. (CBC told the National Post it was sorry to lose her but added that extra travel expenses related to Findlay’s recent decision to move to another province were a factor.)

And employees have some unexpected leverage on this front. Even amid a high-profile round of layoffs in the tech sector, the labour market for white-collar workers in Canada remains tight.

Fears of a recession loom, but recruitment firm Robert Walters said in March that banking, tech and finance firms in Toronto faced hiring challenges and had unfilled roles. Across Canada there were more than 50,000 job vacancies in the professional, scientific and technical services sectors in February, according to Statistics Canada. Those jobs would have mostly been in-office roles before the pandemic, but many job seekers these days want more autonomy over where they work.

“If some corporate leaders force employees back into office, as soon as they find themselves in a position where they can find a more flexible working arrangement, they’re going to quit,” says team building consultant Thornley-Brown.

‘Propinquity’ in a hybrid world

Still, if the old office is dead, long live the hybrid office of the future.

It’s not five days a week for everyone, but people do go to the office: by mid-April, foot traffic downtown on Wednesdays, the most popular day, hit an average of 59 per cent of what it was before the pandemic, according to the SRRA’s occupancy index (Friday is the slowest at just 27 per cent).

There’s still some magic to be found in “propinquity,” or face-to-face interactions, says Ford. But he doesn’t think businesses need to implement a mandate or set in-office quotas to get those benefits.

“You don’t have to be in the office three days a week or five days a week in order to build relationships,”

Like many companies, Intelliware has gotten creative about how it convinces employees to come together in its brick-and-beam building on Adelaide St. W., from tequila tastings to hosting regular jam nights for musicians and bringing in speakers to discuss non-work-related topics.

And some younger employees actually want to come into the office more often, says Kimberley Dart, early talent specialist with ATB Financial in Calgary. They want hands-on training, mentorship and the chance to develop a sense of belonging at work.

“For them, work is about socializing,” she says.

On the opposite end, many more senior employees also appreciate the time in the office, says Ruffolo. And they’re the ones that can use their sway over business decisions to maintain at least some office footprint for many companies and firms.

Plus, the city centre does have its allure.

“People do enjoy the restaurants and going to the Raptors and the Leafs. That’s not going to go away,” Ruffolo says. “But if you miss nice restaurants and your commute time is two hours each day, you are going to say, ‘well, screw that.’ ”

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