Covid-19 has transformed how we live, travel, study, and work, and do business. Navigating the pandemic and staying afloat has been a major challenge for many businesses. Due to the pandemic disruption, many have been forced to adopt new performance, management, and planning strategies to cut costs, improve efficiency, and keep operations going. In many cases, this has left their stores, manufacturing facilities, and offices empty.
More than a year and a half through the pandemic, the world is a very different place to live in. From working from home and flexible hours to following a hybrid home-office model, companies are rethinking where and how to operate. Evaluating their operations, many businesses choose to save on real estate and office expenses. With employers offering fully remote opportunities, employees increasingly choose to buy real estate further away from their offices, which has an impact on real estate demand in remote locations.
According to Statistics Canada, about 30 percent of employees have worked from home in 2021. As over 75 percent of Canadians prefer the hybrid model, remote work is likely to outlast Covid-19.
Businesses’ office leasing plans also offer insights into what the future of work might look like. Most companies plan to reduce their office space by around 20 percent. Under this work model, some 70 percent of employees will be working in the office and 30 percent from home at any given time. Insecurity about when the pandemic will end also plays a role. Businesses are reluctant to bring employees back again only to find out that they need to resort to a remote work model in the face of a new outbreak. One thing is certain, however, when it comes to the future of work. Today, we have more openness and flexibility that we had before the onset of the pandemic.
Commercial Real Estate
According to Desjardins Securities’ chief economist Jimmy Jean, commercial real estate is one of the sectors that will be the hardest hit. With many working from home, there will be fewer people in city centers to buy coffee, snacks, or clothing. This will have major implications for small businesses operating near office buildings. The big question is what is going to happen to cities and major urban districts if work remains online going forward?
The shift to remote work is expected to reduce spending in major urban areas due to the smaller number of commuters. An estimate by researchers at the Mexico Autonomous Institute of Technology indicates that spending could decrease by up to 10 percent compared to 2019. The shift to remote work has already affected the value of real estate in city centers, along with sales activity and volume. At the same time, commercial real estate is a major source of tax revenues in large cities.
One of the challenges that lies ahead is how to put commercial spaces to good use post-pandemic. The likely scenario is that some cities would do better than others. The ones that make a successful transition might offer different job opportunities such as entertainment businesses bringing residents and visitors into city centers.
Real Estate in Remote Locations
As the nature of work has changed, workers are increasingly moving to new locales, including remote locations. Many Canadians have come to realize that working from home is more enjoyable, convenient, and cheaper than transit rides and traffic jams. Recurrent lockdowns and spending time in isolation also provoked many to reflect on what is really important for them. And one of the things that is important is more space. For many, real estate prices in remote locations are cheaper, making mortgage payments more affordable. As a result, small towns across Canada experienced a housing boom all of a sudden and due to remote work capabilities.
One of the unintended consequences of the ongoing pandemic is a large-scale exodus of remote workers to the countryside or the so-called secondary markets. Places like the Yukon Territory, the Okanagan, and the East Coast have become hot markets, with workers moving from traditional hubs of industry and finance to small towns such as Lethbridge, Barrie, and Charlottetown.
A recent report by RE/MAX shows that cottage prices in Muskoka, Ontario have increased by over 20 percent in 2021. Real estate worth $350,000 before Covid-19 experienced a daily $200 increase in value during the pandemic. While Muskoka is just one example, many once-flagging areas, retirement communities, and tourist centers have experienced housing booms. Real estate on the Niagara Peninsula saw price increases of 19 percent, while cottages and homes in Collingwood spiked by 19.5 percent. Even places like Windsor, where real estate cost $175,000 on average saw price rises of 21 percent, with homes now priced at about $406,000. The fact is that small cities across Canada saw a housing boom, and not just in Ontario. Early market research showed that real estate prices would increase by 5 percent by the end of 2021, with price gains of up to 27.3 percent for single-detached homes. This trend is mainly due to families relocating to less-dense cities and municipalities. And in a world without live entertainment and travel, many were able to save cash for a down payment. A contributing factor is Canada’s historically low interest rates, with rates going down every time when borrowers choose to refinance their mortgage.
According to finance experts, wage inflation could soon turn into a serious problem for the Bank of Canada. The bank announced plans to keep 2 percent inflation targets, with current rates at 4.4 percent.
Wage increases result in higher costs for businesses cross sectors, making goods and services more expensive for consumers. As a rule, wage inflation does not result in an improved purchasing power or better standard of living because consumer goods become more expensive. Businesses are forced to increase wages, eventually causing an inflationary spiral and imbalances in the labor market.
The Future of Work Post Covid-19
The pandemic has brought changes to where and how we work and affected labor markets across the globe. Yet, this one-in-a-century health and economic crisis is not only a challenge but an opportunity for businesses and employees to redefine the future of work. Moving forward, employment in some sectors is likely to increase, including STEM professionals, technicians, healthcare workers, and health aids. Employment in other areas such as office support and customer service is likely to shrink. Whatever the case, businesses have the chance to redefine their workplace and workforce by shifting their focus to specific responsibilities, tasks, and related skills rather than entire jobs.