Times are changing.
How we work, where we work, and even when we work, have been turned upside down as we navigate a global health crisis.
Since March 2020 when Canada implemented lockdown for the COVID-19 Pandemic, many professionals packed up their briefcases to leave their employment headquarters behind, and now work online from their homes. At present, despite moving toward re-opening our infrastructure and economy, the majority of these same folk are continuing to WFH for the foreseeable future.
During this time, a lot of permanent employees discovered the capabilities and opportunities of telework, with a few exceptions; hiring online is tough, as it's really challenging to train someone remotely. No longer can you lead someone through an office and point at the corner office and say "That's where the CEO plays Candy Crush, this guy in the too-tight-pants is Administrator Steve, and that's Amy, who lands all the big clients but gets drunk at Holiday Parties." And, apparently, it's just as hard for the new employee who is looking at a screen of identical rectangles on Zoom trying to identify the chain of command, who leads each department, or why some people don't find it the least counterproductive when they let their kids make personal appearances (I'm actually charmed by it).
Meanwhile, the self-employed - contracted or budding entrepreneurs - discovered the lockdown often levelled the playing field if your work requires excellent communication skills. In fact, if you were already zippity-zip proficient in Zoom or Slack, you might even be favoured over those in your client's own organization who weren't. (And if you owned stocks in either of them, you might even soon be able to retire based on their phenomenal escalation in value!)
This article dating from May 2020, called 'Business Post COVID: Is Canada Headed For A Stall In Startups And Support?' shared the findings of a survey conducted by The Entrepreneur's Organization (EO) Toronto, a group of 111 business leaders, who are the owners, founders or controlling shareholders of companies with revenues of at least $1 million + a year. At the time they identified resistance by many in terms of starting a new business. However, I rather suspect this was before the terms 'pivot' and 'iterate' caught fire in the COVID-19 lexicon as I'm reading about a lot of people taking the leap into entrepreneurship, in particular those disproportionately affected by the lockdown such as women and those working in tertiary services. For example, here's a CBC piece called 'Are We Nuts?' Meet Canadians Who Started Businesses During The Pandemic'. And with this health crisis bringing a new world order centred around technology, the truth today is that you could be the most incredible plastic surgeon but if your website is shite and your response time is crap your status may soon be second to the fresh albeit inexperienced new face who is techno-proficient.
Buh Bye, Commercial Real Estate!
Like many, I'm watching the commercial real estate market very closely because corporations will inevitably be reevaluating their office space needs or requirements. Given many employees currently working from home will want to retain some 'WFH Days' this means, theoretically, that many corporations won't require the same amount of square footage as they currently have at some point in the future. However, right now most corporations (who typically have long term office space leases) are probably focusing on how to reconfigure their existing spaces so that when employees do start returning to the office the appropriate precautions, measures and social distancing requirements are in place. With this, we'll see offices incorporate "more sensors to reduce touchpoints, such as on light and power switches and door handles, antimicrobial materials, more and better air filtration, temperature monitoring at entry points, and desks that are spaced farther apart" (thanks! CNBC).
Not only do companies have to resolve where their employees work (WFH office and/or corporate HQ), but along with redesigning their office space plans, they'll be changing their procedures and reorganizing their operations (are employees split into different 8-hour shifts so social distancing in the workplace can be achieved?) and, potentially if not likely, restructuring their organizations to mitigate any financial losses, system failures or collapsed markets resulting from the pandemic. In fact, many of the issues with the COVID-19 outbreaks in Long-Term Care Facilities will also have to be resolved in commercial office spaces (in particular in the towers), including concerns on how 'WHO Changes Guidance On Possibility Of Airborne Transmission Of COVID-19'.
While Maclean's explored "Out-Of-Office Is The New Office. Can The Work-From-Home Boom Last?", let's not forget we're already seeing significant numbers of retail, restaurant and entertainment venues in urban centres being shuttered indefinitely, too. It portends a surge of vacant commercial spaces, a decline in market rents, and potentially a drop in values. It's likely the impact will be greater in magnitude than the residential market - which may be limited to high-rise high-density condo towers and require a longer period of time to recover. Behold creative destruction in play as it nips at the heels of capitalism as we knew it.
Personally, I suspect the decision by nation-states to implement coronavirus lockdowns and temporarily 'freeze economies' has unintentionally created the opportunity for any industry, conglomerate, or platform to 'file for chapter 11', implement massive layoffs, or eliminate key positions and people (who until now had job security). They can now claim "the pandemic caused substantial financial duress", when, in fact, it's a ruse to reduce expenses, automate, and increase profits.
This will undoubtedly include how companies employ people. Instead of the current convention of large corporations predominantly hiring permanent staff, I wouldn't be surprised to see companies replace 'employees' with 'independent contractors' who 'work from home' most of the time, only coming to the company HQ's for team meetings. These contract workers won't have an office to go to, nor will they have benefits or vacation/sick days. They'll basically be self-employed doing the same job but for less money and less security.
For these reasons, I believe we're going to see an explosion of entrepreneurial startups and small businesses. But how will we do that if our residences don't allow us to operate our companies from home?
What If You Need A Live/Work Space?
For many, working from home may mean only transforming the guest bedroom that your deadbeat brother usually stays uninvited into a dreamy home office. But what if your profession calls for you to utilize the property to house both residential and commercial interests? The truth is that we can't legally operate a business out of a property strictly zoned residential, although the Home Occupations Bylaw allows you to have a home office providing you don't have any employees showing up to work.
As a result, in Toronto, it's never been easy finding a property that can accommodate both your personal and professional lives. It's mostly because the noisy noxious uses of industry and commerce are considered incompatible with our domestic lives. And broadly speaking, it's true. It's why urban planners in the early 1900s began separating functions by creating single-use zoning and eventually inciting Toronto's Garden City movement - essentially the first planned community away from the industrial urban core, which gave rise to suburban development. Incidentally. I'm in the process of completing a post on the Garden City movement, suburban development and urban sprawl. Coming soon!
Over time, a purposeful distance was placed between residential and commercial by the development of zoning and land-use policy. The impetus for this makes good sense at surface level; a factory spewing smoke is unhealthy, and certainly not ideal to have right next door to your home. However, while single-use zoning does solve one problem (i.e. create areas for appropriate/intended uses of built environments that are initially supportive to health and safety), it does create another subset of problems, especially as our societal framework on how we do business has evolved over time.
Single-Use Zoning Is Now Problematic
Single-use zoning (also known as Euclidian Zoning) basically divides towns and cities into districts for specific land uses, creating space between industrial and residential areas to protect against things like pollution. Single-use zoning is a basic model that has not evolved to create appropriate solutions for the increasing complexity of social, political and environmental challenges in cities, according to critics.
Problems affiliated with Euclidean-style zoning policy include "urban sprawl, urban decay, environmental pollution, racial and socioeconomic segregation, negative economic impacts and overall reduced quality of life. Land use regulations associated with a high separation of land uses have also been criticized as being fraught with legal obstacles to rehabilitating neighbourhoods affected by the aforementioned problems  (such efforts are often referred to as urban rehabilitation or urban renewal)". (Thanks for the synopsis Wikipedia)
Euclidean zoning represents a functionalist way of thinking that uses mechanistic principles to conceive of the city as a fixed machine. This conception is in opposition to the view of the city as a continually evolving organism or living system, as first espoused by the German urbanist Hans Reichow.
Today, we know there are lots of reasons why single-use zoning is problematic. It stymies opportunities for small companies and can, in essence, suppress entrepreneurship, by limiting available affordable opportunities for setting up a business. It also contributes to the erosion of affordability, which we have seen first-hand here in Toronto, where lack of housing stock and lack of land to build new homes to keep up with demand is driving prices up. I talked about the needed change for land-use policies to address this, particularly in helping create affordable housing for the “missing middle” in my posts 'Toronto Real Estate, Yellowbelt Zoning & The Missing Middle: Part One and Part Two'.
And the intention to protect residential areas from contaminants produced by industrial activity has proven to be problematic in the past. In the 1970s they discovered 970 properties south of Queen Street East in South Riverdale (aka Leslieville) had high concentrations of lead in their soil, and it took the residents until the late 1980s to have the soil surrounding their properties replaced, in addition to 717 dwellings undergoing interior cleaning to remove the lead contamination. In fact, historically most cities had the cheaper working class properties located on the east side because of the direction smoke blows. It's 'Why Toronto’s East Side Real Estate Has Historically Been Cheaper'.
With the restrictions around single-use zoning, it is rare to find properties that can successfully combine commercial and residential interests, with a good location that will support business growth and deliver a desirable lifestyle. In Toronto, there aren’t many properties where you legally can live/work and have employees come into your space, making it a real find when you locate such a gem.
More and more common in urban centres, the purchase of a live/work space is a strategic real estate move that could not only help you to build your personal wealth, but also assist with growing your business. This is a trend that is growing in popularity due to a shift in the market, workplace habits, and infrastructure. In fact, with a growing Independent Contractor population, and more and more companies transitioning to flexible shared working environments, buyers are increasingly thinking outside the box when purchasing real estate!
Toronto real estate has evolved over the decades to utilize available land and buildings to suit multiple needs, but as demand in the live/work segment grows, what impediments do zoning and land use policy create?
Adaptive Reuse Conversions & Live/Work Zoning
In the late 1980s/early 90s in Toronto, my Graduate Degree in Environmental Studies called Planning Housing Environments included my research on the Adaptive Reuse Conversion.
Initially, only factories situated in residential neighbourhoods were considered suitable because their conversion to condominiums made them more compatible with their locations. Want to see some examples? Check out my post titled '12 Adaptive Reuse, Live/Work, Storefront & Coach House Conversion Sales In Toronto'. Unfortunately, not many of these properties retained their original commercial/residential zoning that allows for a commercial business to operate. Compounding it, in the mid-1990s the City of Toronto missed an opportunity when it changed the zoning of two large swaths of industrial lands in the central core - basically on either side of the CN Tower - to a new designation called Live/Work. While it was an ideal time to allow people to operate their small business from their residence - and even designate a part of the dwelling as such with the higher commercial tax rates - this new designation basically meant that a site could either become Residential or Commercial or have both uses but in separate parts of the building. It didn't allow for spaces to be both, outside of a narrow definition of home occupations and 'artist's studios'.
A number of factory buildings did become Loft Conversions, several which I played a role as a consultant or as the listing realtor in the sales and marketing of, but those that met the City of Toronto's requirements to become living spaces were limited because of the strict criteria which a building and its site had to meet. These criteria included having sufficient setbacks from the lot line or other buildings or meeting the minimum parking requirements which were typically at least one parking space per unit. Furthermore, the cost to redevelop a building into a loft condominium was frequently not economically viable (here are my posts 'Understanding the Development Process: Part 1 - and - Part 2'); or the demand and return on investment wasn’t ideal. As a result, many of the century buildings became exclusively commercial office 'loft spaces' which require less stringent building code standards than residential properties, including sound attenuation, fire separation and parking requirements. As a result, commercial property developers could pay more for these acquisitions which is why Toronto has a fairly limited supply of hard lofts.
And, unfortunately, the definition of a live/work zoning was extremely restrictive, in that it was typically geared to artists having studios rather than business enterprises with employees. And given these are exclusively condominiums, their rules and regulations strictly prohibited any flexibility in this definition. Even when Toronto began seeing much larger loft conversion project such as The Merchandise Building, Tip Top Lofts, Argyle Lofts and Brewery Lofts - because the city recognized in its reinvention as a post-industrial urban environment that industrial uses should be located in suburban industrial parks close to highway and rail corridors - they also don't allow businesses to operate commercial enterprises in these former production spaces. Boo!
It was short-sighted, given any property today which offers a true commercial/residential use - albeit perhaps without noxious chemicals, heavy machinery or excessive noise - would be highly-coveted, especially given the popularity of the loft stylistically spawned the development of new condominiums which embraced the aesthetic. As the original Innovative Space specialist in Toronto who did the sales and marketing for several loft conversions, I've written a great deal about this subject. Check out 'Dear Urbaneer: What Is The Difference Between A Hard Loft And A Soft Loft?'
Emerging - As In NOW! - Trends
Our society is going to become more entrepreneurial as we look for smart ways to align our business objectives with personal growth and holistic wellness. This means we should anticipate a growing (and immediate) market for properties that allow for both working and living, whereby one part of a building has a workspace, which might be an office, storefront, professional meeting space etc.and a portion for residential purposes.
While we've witnessed the movement away from conventional offices housing one firm or brand toward flex shared spaces where creatives and entrepreneurs work side by side in a less structured environment, I'm anticipating the pre-COVID-19 estimate that co-working spaces shown in this infographic by The Professional Centre estimating that 30% of global commercial real estate investment portfolios will also be derailed by the pandemic.
This 2016 article by the CNU Journal, '"Leaning Toward Live-Work", chronicles the demographic and social support of the trend, as well as the different types of work/live arrangements and building types. It also shares how policymakers have been slow to respond to zoning changes to accommodate the growing need. While this article is based on U.S. data, much of the same movement is happening in Canada. Another great read is "How Developers Are Adapting to Residents' New Live-Work-Play Lifestyles" published online in Multifamily Executive Magazine..
Personally, if the commercial office sector tanks in urban centres like Toronto, the City should embrace a shift in zoning policy, with adaptations to building codes so that our existing Office Towers can legally become New Live/WorkSpaces. Imagine an entrepreneur being able to buy floor space in a tower where a portion can be allocated as Residential with a connecting door to a portion which can be designated Commercial so they can operate their company next to their home, and potentially expand by purchasing or leasing adjoining or nearby units as their business or family expands? Each year during the Fire Inspections the unit can be checked to ensure its uses are still aligned with their tax base to ensure there is no deception or tax evasion.
Short and sweet of it is that we need spaces that accommodate entrepreneurs and small business owners who want to run their companies and live in a space where they're paying down their own mortgage to secure their futures. It’s win-win!
The Shift In The Market Is Coming
It’s the market that ultimately drives shifts in development, but it's land-use policies that allow those shifts to happen. A Toronto Urbane Land Institute article - "4 Key Trends That Will Shape The Canadian Real Estate Industry In 2020"- identifies the movement for consumers to reimagine their spaces in the context of work/life as a driver in the market. The Ontario Home Builders Association talks about the focus of developers to convert commercial buildings to suit this need in their article titled, 'Live-Work Spaces Are Flexible Spaces'.
This Spacing.ca article puts forth some interesting arguments around changing zoning in residential neighbourhoods to re-integrate corner stores as commercial/residential buildings, suggesting that doing so would encourage more pedestrian living, as well as lure business into the neighbourhoods if locations were transit-friendly: "Spotting (And Reviving?) The Neighbourhood Corner Commercial Building". It’s a solution that would create both residential and commercial spaces in sought after locations.
As far as specific buildings that lend themselves to live/work in Toronto, I can attest as a realtor who serves many creative and entrepreneurial clients there is a shortage of supply compared with what is documented as growing demand. Specifically, there are few gems that offer the trifecta of location, the zoning requirements and the physical layout that permits a mixed-use. That’s why, when an opportunity in the downtown core for such a building arises, it is worth considering a purchase strategy, not just for the benefits of your own work/life intentions, but as a solid real estate investment - because the supply is limited in the growing face of the demand.
Two Commercial/Residential Sales Urbaneer Recently Facilitated
One of our clients recently engaged us to sell their Live/Work Brownstone On The Danforth. A former physician's office transformed into an exceptional dwelling, the property retained its residential and commercial zoning, so it suited a multitude of purposes, including an easy reversion of the main floor into a dedicated workspace, while the upper level could be converted into a self-contained suite. Having over 1700 square feet plus lower level, and four-car parking with frontage on Danforth Avenue, this flex property sold within six days of listing at $1,289,000 for $1,255,500 to our Buyer client.
Secondly, Urbaneer recently assisted a client in purchasing a two-storey storefront property zoned commercial/residential. With two tandem parking spaces, it's ideal for his plans to open a small bakery! The main floor storefront is where our client plans to build his business, while a separate bijou bachelor pad makes up the rear 20% of the level (with kitchenette, 3-piece washroom, and entry via the rear garden.) The second floor is home to a smartly-renovated two-bedroom suite; the monthly rent for this apartment will help offset the costs of the multi-use property for our client. Moreover, there's an unfinished basement that can be used for business storage or can be developed for future use! Boasting a southerly exposure and well-situated in the centre of the block, the property is exposed to a lot of foot traffic - and potential customers! Even better, with the impending completion of a new condominium across the street, our client will be conveniently situated to offer his tasty baked offerings to the new residents! Offered at $989,000, we helped our client secure the property for the asking price!
How amazing is that?
A smart strategy is crucial to real estate success and lifestyle happiness. With nearly three decades of experience in helping buyers identify goals and finding properties that match, my team and I are here to help!
If you enjoyed this piece, here are some of my other posts on Toronto real estate you may like including:
Intrigued by how COVID-19 is impacting the Toronto real estate market since the March 2020 Lockdown? Check out:
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Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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