“Leading world cities have been major victims of COVID-19, both from the virus itself and its accompanying economic disruptions,” BentallGreenOak head of Canadian research Phil Stone said while discussing the company’s new Future of Cities report.
COVID-19 has shone a brighter light on systemic issues in major cities, including a lack of affordable housing, income inequality and racial and social injustice. The report authors, however, expect this to spur a wave of investment and innovation focused on improving these issues and creating better, more resilient cities.
The report says major cities will remain leading centres of culture, innovation and economic power while calling the current scenario “a bump in the road for urbanization.”
The recovery and long-term success of cities will depend largely on how leaders and citizens handle the pandemic. People will want to go to cities providing the best opportunities to succeed and placing the health, safety and wellness of their citizens above all else.
Leaving big cities has become more viable
People still want to live, work and play and large cities are going to have to come up with ways that allow them to do that while feeling safe. That may not be the case at present, and there are indicators people who can leave are doing so.
“This was already happening prior to COVID to a degree due to affordability issues and COVID has accelerated this trend,” Stone said during an interview with RENX.
He believes this is a short-term trend and many people or companies leaving major cities will eventually return.
Decentralization, which allows office workers to have more flexibility in where they conduct their work, is already affecting the office and residential real estate markets in Toronto, Montreal and Vancouver.
Hamilton, Kitchener-Waterloo and York Region will likely be beneficiaries of corporations and individuals becoming more mobile in Ontario, according to Stone.
“The office of the future is not likely a single location, but will be a network of spaces and services that facilitate productivity and well-being,” said Stone. “But, the office building is going to be an integral part of that productivity stack over the long term.”
Remote work varies in different countries
Remote work is largely a North American phenomenon; it’s not as common in Europe and especially in Asian-Pacific markets due to cultural differences and smaller living spaces due to high population densities, according to Stone.
Given the aggressive response to COVID-19 in many Asian-Pacific markets, as well as cultural reasons, office occupancy levels are almost back to pre-pandemic levels in large cities such as Tokyo.
Stone said Canadian building owners and developers need to work with tenants as they re-evaluate their space needs in this new environment and look to provide the best health and wellness options for their employees.
“There’s a long road ahead as far as how these decisions will be made and a lot of it will hinge upon the next 12 to 18 months.”
Advantages of major Canadian cities
Major Canadian cities may be in a better position than their counterparts south of the border for two main reasons: they’ve generally handled the pandemic better; and Canada doesn’t have nearly as many large markets, so options are more limited for Canadian companies looking to move.
One of the near-term challenges to the Canadian economy and Canadian real estate is that immigration is, temporarily, on hold. Immigrants had been replacing the outflow of people from major cities to keep their populations growing.
Stone expects large Canadian cities will remain attractive to immigrants and the federal government will increase immigration targets once COVID-19 subsides and travel restrictions are eased or removed.
Growth drivers in knowledge-based economies are predicated on research conducted in leading universities in major cities, and that will continue to attract the best and brightest from around the world in fields such as artificial intelligence and life sciences.
Major cities also have an advantage through agglomeration economies, where companies benefit by being close to one another.
This clustering allows for such things as labour pooling, sharing of suppliers and specialization, which can contribute to increased productivity and economic growth.
A “more flexible mindset” will be needed
Stone said it will be important to develop a “more flexible mindset and approach to real estate going forward,” and serious thought should be given to putting more advanced manufacturing, food production and other light industrial uses in urban areas.
“When we get through this crisis and the resulting economic impacts of it, there are going to be opportunities to repurpose various forms of real estate.
“Both cities and respective governing authorities, as well as the private sector, are going to have to work together to provide a framework for how we think about incorporating different uses into real estate.”