The creative and tech industries, and the workplace preferences of the millennials in them, are driving real-estate demand in urban centres.
In 2011, a CEO's 'Dear John' letter to his landlord went viral. Andrew Basile, Jr., was worried that he'd have to move his tech-focused patent law firm − but not for the usual reasons.
It wasn't the cost of rent, nor were there tax or regulatory barriers to staying in Michigan. "We spend more on copiers and toner than we do on state taxes," he wrote. With a client base that included Google, the firm was growing − but they couldn't attract the talent needed to keep up. Candidates were willing to relocate, just not to suburban sprawl.
"It is visually unattractive and … lacking in quality living options other than tract suburbia," wrote Basile. "Some might call this poor 'quality of life.' A better term might be poor 'quality of place.'"
In the ensuing eight years, quality of place has only increased its currency. The highly skilled knowledge workers that are crucial to information technology and other rapidly growing sectors of the new economy will come, if you build it.
In a report titled Chasing the Past or Investing in our Future: Placemaking for Prosperity in the New Economy, the Land Policy Institute at Michigan State University said "people today 'chase place,' not necessarily jobs, as in the past."
"Young professionals and highly skilled employees in the creative industries and tech sectors are choosing where they want to live," agrees Paul Zemla, President, Investment Management and Chief Investment Officer at Bentall Kennedy, one of North America's largest commercial real estate advisors. "They're choosing communities that offer the full live-work-play spectrum. They want to live where they can take transit or walk to work. Tech companies have followed those people into the core, and it's created a circular, dynamic situation largely in Toronto, Vancouver, and Montreal."
In a survey of millennial workers (aged 18 to 35), conducted by Wakefield Research for the Graebel relocation firm, 84 per cent said they're willing to move cities for a job. More importantly, they would take a pay cut, or postpone marriage and starting families, in order to live and work in their dream cities.
"That is almost a direct contrast to how it used to be, where you would find your job and, wherever that was, that was where you lived," says Avis Devine, an associate professor of real estate with the Brookfield Centre for Real Estate and Infrastructure at York University's Schulich School of Business. "That is not how we make decisions anymore, and companies know that. They understand that the concept of place is vital to economic competitiveness. Therefore, this becomes much more an issue for real estate, for cities, for markets."
The millennial dream-city wish-list includes mixed-use environments, short or non-existent commutes, green infrastructure and practices, and efficient public transit.
In the 2018 edition of its annual Perspective report, Bentall Kennedy notes that the Canadian tech sector has grown by an annual rate of 4.3 per cent since 2011, largely focused on Vancouver, Toronto and Montreal.
"It's gotten to the point where creative space tenants − media, advertising, tech − have created as much, if not more of a drive on office space demand than the financial sector, which has never happened before," says Mr. Zemla. "As these tech firms grow up and grow out of their current space, they're demanding better space. Part of what we, and others, are trying to do is make investments that play off of the influence of those tech and creative expansions."
He cites Bentall Kennedy's recent acquisition of L'Avenue, a new mixed-used development located in downtown Montreal. The building has retail on the street level, an upscale supermarket on the second floor, and 84,000 square feet of office space, much of which is occupied by WeWork, the tech startup co-working space. Bentall Kennedy is building projects with a similar mixed-use profile in Toronto's Liberty Village neighbourhood, with another in the planning stage.
What knowledge-workers want
Sheetal Jaitly, founder and CEO of TribalScale, is typical of this new breed of tenants. His software design and development company has added 120 people over the last two years and has moved offices four times − each a short-term sub-lease − to keep pace. Even though it's a challenge to find the square-footage the growing firm wants in the urban core, he says a remote industrial park isn't an option.
The TribalScale workforce skews solidly mid-millennial. Mr. Jaitly says the company's current 27,000-square-foot offices, located in downtown Toronto's David Pecaut Square, double as a "recruitment tool."
"We're in a very vibrant part of the city. We're next to Roy Thomson Hall, we're near the financial centre and the entertainment centre. We're accessible by TTC and GO [regional transit system]. Our people like working in the area; they live here or find it easy to commute to. They want to be where they can go out to dinner, or go for a jog by the lake.
"It's super important because our people and processes are the magic sauce. To attract the best talent, not only do you have to have the vision and the creativity. You have to have a location that keeps employee morale high."
Prof. Devine says "chasing place" isn't the only workplace sea change. The physical spaces themselves are transforming. Knowledge workers don't just want their buildings to be in vibrant communities − they want the buildings themselves to be vibrant communities.
"They don't want that segregated office floor space, the traditional office with a door," she says. "They want something more open, collaborative and more accessible."
Nobody at TribalScale, for example, has a closed office, including Mr. Jaitly. In addition to traditional desks in an open floor plan, there are also what he calls "fluid workspaces" such as sofas, benches, and beanbags that allow workers to choose where they want to work, and with whom.
"Younger people don't want to be working in a cubicle," he says. "They want to collaborate. They want to learn. They grew up with social media and collaboration tools always at their fingertips. They want the open work environment and common areas where they can learn about other parts of the organization by osmosis just by hearing different people talking."
Open doesn't necessarily mean more, either. The Perspective report notes that the average square-footage per worker is declining, an indication that "some tenants are focusing more on 'how space is being utilized' rather than 'how much.' Tenants are allocating more resources to better quality space that is amenity-rich and provides flexible work environments for both independently focused work and collaborative projects."
According to Prof. Devine, the average space allocated per worker has dropped from 250 square feet to below 200, "and the most cutting-space is down to 110-125 square feet per person. So we're talking about cutting your office space needs in half. Think about the implications in terms of rent. Or for the build-out: How much higher quality could the space be if you needed half as much of it?"
For TribalScale's Mr. Jaitly, the money and effort his firm has spent renovating a succession of cubicle farms "so they're tech-friendly" is well worth it, even when his company outgrows the revamped space. "We haven't had any trouble sub-leasing our sub-leases," he says. "In fact, when we moved out of our last offices, there was a bidding war."
This content was produced by The Globe and Mail's Globe Edge Content Studio in consultation with an advertiser. The Globe's editorial department was not involved in its creation.