Reading accepts that from a real estate utilization perspective, ‘bank’ is a somewhat poor descriptor of these companies. Canada’s Big Six are better understood as massive financial conglomerates, with huge asset management, insurance, and other financial services businesses. As a result, their office utilization is somewhat more sizeable and varied than the blending of retail and office space that’s required for the maintenance of bank branches. It’s those other areas of financial services that require some of the massive square footage in the banks’ downtown office towers.
The impact of this return to office may go well beyond Canada’s downtown cores, however. Reading notes that these banks have become significant office tenants in many Canadian suburbs where office development saw something of a boom before the pandemic. Reading expects that both suburban and urban office real estate in Vancouver, Montreal, Calgary, Edmonton, Ottawa, and Toronto will see demand upticks from this move. Toronto, he says, will likely see the biggest impact.
There is a deeply symbolic importance to this return to office, Reading explains. These are some of the biggest business brands in Canada and countless ancillary businesses exist in an ecosystem where these institutions play a keystone role. The banks’ embrace of in-office work should also prompt other businesses to mandate returns of their own. Though Reading notes that the ongoing competition for the best talent will remain a factor in whether Canadian companies decide to pursue returns to the office or not.
Important as the banks’ return to office is for Canadian commercial real estate, Reading notes that this is just a positive first step for the market. The scale and length of the office real estate downturn is enough that the recovery will take much longer than in any normal cycle, Reading notes. The fact that new office development has slowed to a crawl should help support the recovery. The entry of the banks as a more meaningful source of demand can also help investors in the sector feel a bit more positive.
That is not to say there aren’t still risks to this recovery. Reading highlights wider risks to the Canadian economy and notes that if Canadian growth stays sluggish, or even slows into a recession, we could see the recovery derailed by weak hiring and even rising layoffs. On the other hand, if jobs growth in white collar sectors begins to surprise to the upside, then the office recovery might truly be on.
