In the fall of 2021, before the Omicron variant swept through the province, approximately 25 per cent of downtown Winnipeg’s 70,000 employees had returned to the office from their work-from-home assignments.
That’s a lot of empty space in an ordinarily bustling area of town. However, according to Colliers Canada’s Winnipeg Office Market Report Q4 2021, overall vacancy rates throughout the city as a whole have remained consistent during the COVID-19 global pandemic—from 13.1 per cent in Q4 2020 to 13.2 per cent in Q4 2021. Suburban spaces experienced a slight increase, growing from less than 8 per cent in Q4 2019 to 11 per cent in Q4 2021. Time will reveal what 2022 looks like for landlords and building owners as provincial restrictions ease and companies begin to enact their post-pandemic work plans. In the meantime, the question remains: what happens with all the unwanted office space?
The April 19, 2021, Federal Budget was highly anticipated—it was the first one presented in two years and the first following the onset of the COVID-19 global pandemic.
With economic recovery and resiliency top of mind, the federal government proposed $101 billion of stimulus as a growth mechanism for Canada’s economy. This included income programs for Canadian workers and tax incentives for businesses amidst provincial lockdowns, rising COVID-19 case numbers, a nationwide vaccine rollout, and general malaise from Canadian taxpayers anxious for things to get back to normal.
“We’re spreading people out over larger footprints. Office system panels are getting taller, and private offices that have been ‘doubled up’ are reverting to single-person spaces.”
One business tax proposal of the 2021 Budget was the “office renovation tax credit” offering temporary immediate expensing for Canadian-controlled private corporations (CCPCs). Limited to $1.5 million per tax year, the proposal was valid for 100 per cent of capital outlays, effective for property purchased after April 19, 2021, and available for use before January 1, 2024. The $1.5 million deduction limit would be shared among associate members of a group of CCPCs and included proration for any tax year less than 365 days. The half-year rule for capital cost allowance was to be suspended for eligible properties.
Jordan Ludwig, president of Brandon Business Interiors, says, “Tax incentives are an important tool when trying to change or entice corporate behaviour, but it can’t be the only tool. It needs to be coupled with education that makes people more comfortable with the world and their environment.”
The majority of Winnipeg’s vacant office space is downtown. Winnipeg Office Market Report Q4 2021 notes that in total, 2,225,267 square feet throughout the city await tenants, and 1,715,407 square feet of that is downtown. The majority of leases are for properties that have either been renovated or are brand new. Specific to the downtown market, numerous RFPs seek upgrades and renovations for existing office space.
There is a growing demand for quality workspaces, whether old or new. So, what should they look like? “I think we’re going to see a shift towards offices being a space of collaboration where people come together to achieve more than they can in isolation, and we’ll have to be conscious of how to design around that function,” says Ludwig.
It might not make fiscal sense for some companies to redesign or redevelop the existing physical area and therefore opt for a move. Regardless, a typical post-COVID-19 office may include more space per employee rather than keeping the “sardines-in-a-tin-can” feel of out-of-date office space.
That’s something Ludwig has noticed as he works with his corporate, small- and mid-sized business clients. “A premium is being placed on personal space,” he says. “As people move back into their offices, the smart owners and landlords are being proactive and reconfiguring spaces. We’re spreading people out over larger footprints. Office system panels are getting taller, and private offices that have been ‘doubled up’ are reverting to single-person spaces.”
While the so-called “office renovation tax incentive” could inspire economic growth, much-needed facelifts, and address office vacancy, as of December 31, 2021, legislation surrounding the temporary immediate expensing for CCPCs had not been tabled in the House of Commons. The Canadian Revenue Agency cannot allow the proposed deduction until it is. The Chartered Professional Accountants of Canada says filing amended returns may be possible if the federal government addresses this issue.
