Keith Brideau and his wife, Margot, in front of the Saint John City Hall building. (Image: Cherise Letson/Huddle Today)
Though the COVID-19 pandemic is changing the way people work around the world, those in office and commercial real estate in Saint John say flexibility will be key as the full impact it’s had on the sector starts to show.
With the pandemic forcing many people to work from home, businesses everywhere have been grappling with the need and use of physical office space. But even in smaller markets like Saint John, how, if at all, COVID-19 will change the office and commercial market is still unclear.
According to numbers from Turner Drake from June, Saint John saw the number of rentable office space in Saint John increase 0.93 percent over last year. But the overall vacancy rate decreased from 18.26 percent in 2019 to 16.47 percent in June 2020, a decrease of 1.79 percent.
To compare with other New Brunswick cities, Moncton had a vacancy rate of 12.92 percent, up from 7.68 percent a year prior. Fredericton has the province’s lowest office vacancy, with a rate of 5.99 percent, 2.05 percentage points down from the year before. Fredericton also has the lowest rate amongst Atlantic Canada’s six major cities.
Unlike in some bigger centres where businesses are considering ditching the office to save on expenses, Paul Moore, president of Brunswick Brokers, says a lot of the businesses he’s worked with in Saint John have been more cautious in their approach. From March through the summertime, tenants were not making any major moves.
“Overall from an office perspective, companies have been slow in making decisions. They’ve been really trying to push out decisions because the environment has been changing so much in terms of office, and quite frankly, in terms of our social environment as well,” says Moore.
“In terms of existing tenants, there hasn’t been much movement at all. Most companies are staying put and trying to let time go by and trying to determine what it’s going to look like when we come out of this environment that we’re in right now.”
Though current tenants weren’t leaving in droves, recruiting new ones, particularly those looking to relocate to New Brunswick, has been challenging.
“In terms of getting new leases in place, that’s been a challenge,” says Moore. “If you’re looking at a national or international company that wanted to come to Saint John, they’d have to, in normal situations, come look at the space. In order to do that now, they’d have to quarantine for 14 days.”
“That has really slowed growth. The growth has basically gone to zero for all intents and purposes.”
But Moore says Brunswick Brokers has used technology to adapt and has been having success with offering virtual tours of their spaces.
“From marketing perspectives, a number of tools are being used now. We’re doing virtual tours so people that aren’t able to come can see spaces using the high-quality technology possible,” he says. “If they have local people, then they can come and see the space. That’s how we’ve been trying to do it and we’re starting to get traction again by using those tools.”
Managers of newer projects have also experienced some challenges. Elias Management Group, in partnership with Historica Developments, purchased Saint John’s City Hall office tower in 2018. This year the developers finished renovations to the city’s offices on the first four floors and are now in the process of renovating the office spaces on the remaining 12 floors.
Though they have the advantage to be able to renovate offices to suit tenant’s needs, the onset of COVID-19 brought a decrease in leasing inquires for the building.
“In March when things slowed down because of COVID, we weren’t sure exactly [how things were] going to pan out,’ says Chris Elias, chief operating officer of Elias Management Group.
But as restrictions started to loosen up in the summer, Elias says inquiries picked back up.
“Even if projections were that overall demand for space might be down, we saw that a lot of offices were looking to move in order to allow for square footage per-employee and to have the opportunity to redesign with COVID guidelines in mind,” he says.
“We were pleased with the buoyancy in the market once things started picking back up and that’s continued on for the remainder of the year and we’ve seen a pretty steady inflow of inquiries.”
Right now they have new tenants coming in the New Year that will take up the majority of a floor. They’re also solidifying leases with two other tenants who would take up another floor, potentially a little more, who would move in between June and July.
Elias says he’s very confident in the commercial market in Saint John but says the company is ready to adjust its offerings if needed, including looking at shared spaces and co-working models.
“We haven’t done any major pivots in our strategy, but we are open to looking at some of the remote/shared workspace and coworking options. As well as more hoteling options where different companies could share a floor or could have certain employees use it when they’re working out of Saint John and share it with another company who might have certain employees using it while they’re stationed in Saint John,” he says.
“Those are some options that we tabled but those are if our Plan A of getting long-term commercial leases didn’t pan out. But fortunately, that has been a viable plan.”
Vacancy projected to increase in 2021.
New office vacancy stats from Turner Drake are expected early in the New Year, which could give a better picture of how COVID-19 impacted the sector.
But in its June report, it projected that 2021 will see GDP growth of 4.5 percent in Saint John, with a decrease in demand for office space of 3.03 percent. They project no major additions to rental supply are anticipated in the year to come, and the vacancy rate is expected to climb to 19.00 percent.
With so much still unknown, both Brunswick Brokers and Elias Management Group say flexibility will be key to riding out what could come next.
“Nobody has a Crystal Ball and we’re in uncharted territory right now and you’re seeing that right across the country,” says Wallace Floyd, vice-president of Development of Elias Management Group. “But I think the folks that are flexible and can turn quickly to what the client requires maybe a little bit more successful.”
Moore says smaller markets like Saint John may be less prone to a drastic increase in vacancy than bigger markets like Toronto, Vancouver and New York, where people face long commutes, and work in giant office towers that rely on elevators. But time will tell.
“Nobody really knows where this is all going. The key for both landlords and tenants is to maintain flexibility and make sure they understand the needs of what’s required and try to address them,” says Moore. “I think the key thing going forward will be flexibility and I think a lot of companies and landlords have certainly learned that in the last 9 months because things seem to be changing every week, but maybe every day.”
Even if there are more tough times ahead, he says the market will survive.
“It’s going to take a while to figure out and a level out where it is,” says Moore. “Even if there is a net decrease in office demand, again, the book is still being written and it will survive and certainly come back and grow from where it was before.”
Brunswick Brokers Limited and Acadia Broadcasting Limited are each part of the Ocean Capital Group.
Cherise Letson is the associate editor of Huddle, an Acadia Broadcasting content partner.
