As Canada's schools and cities reopen amid increasing COVID-19 pandemic vaccination rates, more companies are announcing plans about bringing their employees back to the office. However, a number of businesses have emphasized that employees will not be returning to the rigid nine-to-five daily office schedules that were the norm pre-pandemic.

Does this mean office spaces are still attractive assets to invest in?

While uncertainty looms over the lasting impacts of the pandemic on the demand for office space, the fundamentals for high-quality, centrally located office spaces in markets such as Vancouver, Toronto and Montreal remain healthy, according to the in-depth Q2 2021 Real Asset Market Report released recently by TD Asset Management Inc. (TDAM).

National office vacancy rates have increased since the start of the pandemic due to the work-from-home requirements employed by many companies. However, the report notes that the pace of vacancy increase has slowed down over the second quarter of 2021. Interestingly, Canada's largest cities like Toronto, Vancouver and Montreal still have the lowest vacancy rates across all North American cities, according to the report.

In addition, Canada's office market witnessed the smallest increase in sublease space over the second quarter when compared to recent quarters through the pandemic. Landlords are also starting to see a pick-up in office tours and leasing inquiries, according to the report.

Office users across Vancouver, Toronto and Montreal have even considered removing space they had previously listed on the sublease market as they reconsider their own future needs and, in some cases, have increased the amount of space they require.

This trend is due to the renewed office activity and greater clarity about return-to-office timelines that Canada has observed recently as cities and schools reopen. The reopening is happening thanks to higher vaccination rates: more than 60% of Canada's total population is now fully vaccinated.

Return-to-office plans will be unique to every office user. However, the consensus points to ease of re-occupancy in the latter half of 2021, with most users favoring a hybrid and/or flexible approach.

For instance, RBC recently announced that it does not plan to impose a one-size-fits-all mandate on how many days employees will need to be in the office and instead will implement a hybrid approach. Other employers plan to offer even more flexibility. Sun Life Financial recently announced that it would give its 12,000 employees the freedom to decide on where they work at any given time.

Despite the different approaches employers are taking, it is clear that they are eager to firm up working arrangements as cities inch closer to a state of normalcy.

And what about new upcoming office supply? The report says most of it will likely be concentrated in locations which experienced tight market fundamentals pre-pandemic and are also expected to see favourable economic trends, including strong employment and population growth going forward.

More than half of Canada's total new office supply over the next five years is expected to come from Toronto and a quarter is expected to come from Vancouver, according to the report.

This will likely help sustain supply-constrained office markets over the medium to long term. For more details about the performance of Canada's office market – as well as the performance of mortgages, real estate, industrial, multi-unit residential and other real assets - check out TDAM's Q2 2021 Real Asset Market Report.