While new technology will increasingly impact Canadian financial services, a new joint report from CBRE Limited and GWL Realty Advisors says the sector will continue to be a key long-term driver of office space demand.

Wendy Waters, GWL Realty Advisors, Senior director, research services and strategy

“On the one hand, a focus on operating efficiency and process automation is making financial services firms more efficient — suggesting less real estate needed per employee,” said Wendy Waters, GWL Realty Advisors’ senior director of research services and strategy.

“On the other hand, financial services continue to grow and hire in sectors such as risk management and technology. It is these offsets that are leading to overall stability for the industry going forward.”

As finance and technology become increasingly integrated, the financial services sector is hiring a new generation of tech talent. To compete for it, banks and securities, portfolio management and insurance companies are reassessing their workplace strategies to create office spaces that meet the evolving demands of technology and a new generation of employees while acting as a tool for employee recruitment and retention.

Shift to more collaborative work environments

“We’re seeing a shift from private to more collaborative work environments,” said Ray Wong, CBRE’s head of research in Canada. “Financial services companies are recognizing that one size does not fit all.

“The needs expressed by a multi-generational workforce and different departments have the financial services sector creating work environments that are conducive to their employees.”

“From the landlord’s perspective, financial services firms need to invest in building amenities such as end of trip and fitness, food, retail and recreational-related facilities,” added Waters. “They also need to invest in spaces with easy access to transit and connectivity, spaces that have good technology capacity such as Wi-Fi, fibre-optic integration and ESG (environmental, social, governance) integration.”

Waters said the leasing process is becoming more collaborative and proactive between landlords and tenants and has evolved from the traditional relationship that was centred around cost-driven negotiations. Financial services companies compete in the knowledge economy for talent and high turnover rates and disruptions can adversely impact bottom lines, so attracting and retaining productive employees is becoming as important as rents when it comes time to decide on new office space.

“For larger firms with significant consolidation, technology and amenity needs, new development is attractive because they can customize their space with more ease, particularly during the construction phase,” said Waters. “Redevelopment can also be successful if it offers similar amenities and physical layout efficiencies that new buildings can offer.”

Being in the right location may be more important than the structure of the building, according to Wong.

Toronto remains Canada’s financial services hub

Toronto is Canada’s leading financial services hub and continues to grow in importance, as another 10,000 jobs in the field are expected to be added in the city by 2020. The sector already directly employs more than 243,000 people and occupies 39.6 per cent of the downtown office market.

It’s estimated that there are approximately 100 Canadian companies in the emerging Fintech sector, which differ from traditional financial firms due to their primary reliance on digital technologies and software to operate, with more than 60 of them located in Toronto. While some Fintech companies compete with traditional financial institutions in core market segments such as wealth management, payments and credit lending, others are more collaborative and provide new and complementary services to the sector.

Fintech firms currently occupy just 260,000 square feet of office space in Toronto, accounting for less than one-fifth of one per cent of the Greater Toronto Area market.

“Over the long term, there may be more demand from Fintech companies as they grow,” said Waters. “As for their real estate needs, it is very diverse.

“Some firms will prefer co-working spaces while other larger firms will prefer more formal office accommodations. Firms in the startup phase of growth typically do not prefer traditional office arrangements due to their unpredictable growth. Long-term contracts and large covenant requirements are not always accommodative to their growth strategies.”

Satellite offices, incubators and innovation labs

This evolving workforce may lead both traditional financial services companies and Fintech firms to open satellite offices, incubators and innovation labs near universities, and other technology hubs that address the needs of employees for live, work and play environments.

“In the city of Toronto, the MaRS Discovery District has a Fintech cluster that connects startups with financial institutions,” said Waters. “CIBC, TMX Group and PayPal are notable groups recently opening offices in the discovery district as a result of the Fintech cluster.”

“We are seeing growth in Vancouver and Montreal, with high population densities and universities with a larger pool of talent to draw from,” said Wong.

This trend could also drive office demand in secondary cities and locations with burgeoning technology and education clusters. This is perhaps most notably being seen in Waterloo, Ont.

“While there is a focus on downtown development and office demand, suburban office spaces can also be attractive for certain industry groups,” said Waters. “Those firms wanting to attract and retain employees who live in the suburbs continue to use suburban locations.”