Two of Canada’s Largest Banks Are Reducing Non-Branch Office Space

The pandemic may have helped banks accelerate profitability… and not just from real estate prices. Well, kind of because of real estate prices. Earlier this month, two of Canada’s largest banks reiterated plans to reduce office space. The pandemic forced them to send non-essential staff to work from home. Now they’re finding things are working out better than expected. This may have a long-term shift in real estate values post-pandemic, as Canada’s largest employers become more comfortable with employees working from anywhere in the country.

Why Is This Important To Watch?

Canada’s big banks are some of the largest employers in the country. They also happen to use a lot of really prime real estate for their operations. As banks become more comfortable with employees working from home, they save a ton of cash. Great for bank profits, and employees that no longer have to commute to do a job they can do from home. It does create a unique dynamic that hasn’t been faced in a very long time though.

People no longer need to pay a premium to live near the office. Many people are willing to sacrifice space and pay a premium to be next to the office. If the office no longer exists, this can reduce urban premiums. On the other hand, this can increase demand for small cities and the suburbs. A trend we’ve seen during the pandemic, that can persist longer than most people think.

TD To Drop 11% of Non-Retail Space

TD has been looking to reduce office space pre-pandemic, but the pandemic has definitely accelerated the move. During the bank’s  earning’s call, Riaz Ahmed, the bank’s Chief Financial Officer, stated “This quarter we made the decision to vacate approximately 1.2 million square feet.” They estimate the office space represents about 11% of the bank’s non-retail space.

The bank’s decision to vacate this specific square footage was only made in the quarter. However, they also stated they’ve had real estate optimization plans that “predate COVID.” This is very different from just 2017, when the bank was seeking out more high priced Toronto real estate. Now they’re looking at reducing square footage.

More CIBC Employees To Work Permanently From Home

CIBC mentioned earlier this week how successful work from home employees have been. CEO Victor Dodig told analysts on the earnings call, “some of our team members are going to work remotely more permanently.” He further added, “We’ve had great success with our contact center team working from home. They’re engaged. They’re productive. They’re speaking to our clients and making their experience much better.” It sounds like they’re also pleasantly surprised with how well it’s working out.

CIBC is building on their plan to consolidate their non-retail real estate. In Greater Toronto, the bank is consolidating 23 offices into CIBC Square, upon completion. CFO Hratch Panossian added to the CEO’s remarks, “This isn’t something we’ve done in isolation. It was always part of the plan and we are not taking on more real estate. We are moving into Square, taking on square footage and we were always going to give up square footage.”

Canada’s largest companies are warming up to work from home, and keeping the extra office rent. In addition to the above banks shifting dependency, is Canada’s largest company by market cap – Shopify. Earlier this year the company’s CEO declared “office centricity” over. The announcement came with allowing most employees to work from home permanently.

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  • PK 3 years ago

    Been WFH at a bank, and I’m loving it. Actually dread having to spend two hours commuting (despite living in the city) to get to the office, to do the exact same job.

  • Trader Jim 3 years ago

    Some of the younger guys at the office have been hold outs since they don’t really believe they’ll get to work from home permanently. I think once things get back to normal, they’ll be more comfortable with moving a little further from the city.

    Always shocked when people say they live in the city to go to restaurants, but only do it once a week. They’re paying almost $400k for the privilege of eating out once a week, which would be cheaper to do just renting a hotel room.

    • Jamie Cass 3 years ago

      My favorite is actually when people talk about the great city amenities, and actually mean Starbucks. lol.

  • Mortgage Guy 3 years ago

    Office overhead rule is typically 1.25 to 1.4x salary. The closer companies get to 1.25, the better for the stock. It would be great if all non-essential staff was reduced from office space, which increases in cost very quickly as home prices rise. Higher home prices = less commercial profitability.

  • Underwriter 3 years ago

    How come you didn’t cover the news that both amazon and shopify are expanding their office space?

    • BDMan 3 years ago

      Cause this is a permabear site? Don’t get me wrong, still a good site non the less to get different points of view.

      • GTA Landlord 3 years ago

        The “permabear” label is something people seem to throw around when they don’t agree with what they read.

        How is it bearish for them to say prices are going to rise in the suburbs? The rest of Canada is seeing prices grow twice as fast as Toronto. It’s not density, it’s desirability. Even landlords over the past few years have been buying based strictly on appreciation, not based on the rents. This is why no professional landlord has taken a new position, and some of the bigger ones have been selling assets.

        • Jonathan Koon 3 years ago

          No offence as I do like a lot of your comments, but this is definitely a permabear site. It’s 99% bad news with the good news either played down or bad exacerbated. It’s like how BD likes to report the “earth is going to blow up” 30% drop cases without mentioning that in the statistical models it shows a better chance of winning the 649.

          Nothing wrong with it, there are also permabull sites and balanced ones, but no need to pretend that BD is heavily bias towards the bear crowd.

          • GTA Landlord 3 years ago

            I’m in the industry, so I pay close attention. That’s not what they said in only article I’ve seen with a 30% drop forecast.

            They compared management statements to the management risk model, and concluded that management thinks it’s worse than expected, but not the worst case. You would normally have to pay $1,200+ to get someone to write a report comparing the model to management statements.

            They really should put this stuff behind the paywall, because the average person really is just an ingrate.

    • GTA Landlord 3 years ago

      Probably because Amazon only expands office space if the government gives it to them with heavy tax incentives (so it’s not really market), and Shopify closed other office spaces, so it’s unclear if the Well location is going to be a consolidation of their other Toronto spaces. Consolidation isn’t expansion. It’s usually a net loss.

      The CEO of Shopify literally said these are only going to be for recruiting and essential staff that can’t work from home. Shopify’s careers page actually says “Work From Anywhere.”

    • SH 3 years ago

      The Amazon “expansion” consists of 500 jobs, mostly redirected from existing offices in the GTA. And it won’t even happen until 2022, so it won’t help the downtown vacancy glut in the short term. Not really as noteworthy as the big banks shifting to WFH right now (not 18 months from now) which impacts tens of thousands of jobs.

      Shopify’s expansion amounts to a doubling of its downtown Toronto workforce to 1,500 total by 2022 (net addition of 750 new jobs). Not tiny, but hardly significant compared to the banks. And again, not happening for at least another year at best.

  • straw walker 3 years ago

    If the banks are dropping office space.. then will they be willing to finance the development of office space??

  • SH 3 years ago

    I bet Trudeau comes out with a “work from home tax” to coerce companies to force workers back into offices full-time. Far be it for him to allow ANYTHING to happen that might actually benefit middle class wage earners, as the WFH trend clearly does (decreased cost for housing, commuting, etc). His priority is making foreign RE speculators richer.

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