Tech companies love hybrid, remote work. So why open a new office? – National

In the early months of the Covid-19 pandemic, Shopify Inc.’s Toby Luttke was one of the first tech leaders to announce that most of their employees would be ‘permanently working remotely’ because the ‘office center is over.’

His belief in telecommuting has gone so far that the Ottawa headquarters of an e-commerce giant has been listed in news reports as an endorsement of using the “Internet, everywhere.”

But more than two years later, the software company will become the key tenant of what Lutke criticized: an office building.

Shopify’s move into the hole — a 3.1-hectare high-profile retail, office and residential development at King Street West and Spadina Avenue in Toronto — makes it one of several tech companies not to back away from new digs, even as their leaders support hybridization. Or telecommuting arrangements where employees visit the office far less frequently than before the pandemic.

Google is similarly located at 65 King St. E. in Toronto. He will take over the new building at the top, even though Alphabet Inc. CEO Sundar Pichai wants employees to work in the office only three days a week.

Amazon’s third Toronto office YYZ18 at 18 York St. will soon expand from eight to 11 floors, even though the e-commerce company’s tech and corporate employees were told a year ago they could work remotely two days a week.

Facebook’s parent company Meta said in March that 2,500 new hires will be housed in a new downtown Toronto location that is mostly larger than the current Mars Discovery District home, but declined to share the size or location. Meta CEO Mark Zuckerberg has allowed all full-time employees to apply from home if their job allows for remote work.

So why is it that most employees spend only half the time or less on new and often large offices?

There are several reasons, says John Trogakos, professor of organizational behavior and human resource management at the University of Toronto.

“Some of this is the initiatives they had before the outbreak and the plans they are still following,” he said.

Shopify and Google, for example, announced Toronto offices before the health crisis enabled remote and hybrid work more widely.

Google spokeswoman Lauren Skelly said in an email that the company will continue to invest in the office despite its hybrid model because it believes “intentional, physical collaboration is key to driving innovation, supporting innovation and solving complex problems.”

As for Shopify, spokeswoman Jackie Warren said the company is “digital by design” but continues to value “highly intentional in-person meetings” a few times a year.

She added that Shopify was originally slated to occupy 254,000 square feet in downtown Toronto’s Vale, with an option to expand to 433,752 square feet.

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After the firms behind The Well, Allied Properties Real Estate Investment Trust and Ryokan Real Estate Investment Trust exercised their first option to expand to an additional 90,000 square feet in June 2020, Shopify declined another 90,000 square feet. Ryokan Shopify’s total leased space will now total 340,000 square feet.

Warren would not confirm or share why the option was rejected, but Allied Chief Financial Officer Cecilia Williams said in an email that her company was able to lease the space “literally in four weeks at a higher net rent to a technology user.”

That’s not surprising, says Michael Case, director of office leasing in downtown Toronto at real estate firm CBRE.

“We’re still seeing more tech companies offering more office space in downtown Toronto, but the pace of growth is likely to slow,” he said.

CBRE’s vacancy rate in downtown Toronto was two per cent before the pandemic – the lowest in North America and the third lowest in the world by case count. It has since jumped to 11.6 percent, a rate he still considers “healthy.”

The national downtown office vacancy rate at the start of the health crisis was 9.4 percent and has since risen to 16.9 percent.

Case said the slowdown in growth and higher job growth has already led to declines in tech companies such as Shopify, Netflix, Clearco and HootSuite as investor excitement in the sector fades.

But Trougakos said that big tech companies are still looking for new offices because they see them as an opportunity to get ahead and make room for future needs.

Those who consider new offices as a “physical monument” can be a way to attract and retain talent as the sector regenerates.

These companies are targeting those days in the office as collaborative and creative “as opposed to head work,” Trogakos said.

“Some places need to be reconfigured to be more conducive to the new way people work.”

Meta spokesman Alex Kucharski echoed that sentiment, writing in an email that offices will “always” be important to the company, which will “meet the needs of our employees no matter where they work.”

Meanwhile, Amazon spokesman Dave Bauer wrote that “there is no one-size-fits-all approach to how every team works for a company of our size.”

The corporate approach to real estate is also true, Trogakos said.

While some companies will forever embrace remote or hybrid work and downsize or close offices, others will be more liberal with space or stricter on how much and what days employees must be in the office and when they can be at home.

“We’re past the point where there’s only one standard way of working,” he said. “Companies need to know what’s best for them and their people.”