Increasingly firm return-to-office directives are poised to generate heightened demand for premium office space across Canada, according to insights from a national real estate firm. In a blog post published on July 24, a leading real estate analysis indicated that the momentum behind the return-to-office trend in Canada continues to build. As more organizations establish in-office policies, the resulting surge in demand is expected to absorb the limited availability of AAA-grade office properties.

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Major Banks Lead the Charge

The analysis highlighted new four-day in-office policies implemented by major financial institutions, including Toronto-Dominion Bank (TSX:TD) and Royal Bank of Canada (TSX:RY). Royal Bank of Canada, following its $13.5 billion acquisition of HSBC Bank Canada last year—a deal that integrated the Vancouver-based institution's workforce and office facilities—confirmed its request for employees to be in the office four times per week starting in September.

Toronto-Dominion Bank stated that executives operating under its hybrid model would be required to work from the office a minimum of four days per week beginning October 6. Non-executives would follow on November 3, with some phased transitions tailored by region or business unit.

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Shifting Employer Leverage and Market Dynamics

Financial institutions are often seen as industry leaders, closely observed by other companies and frequently consulting workplace strategy experts. Even a modest increase in office utilization by these large entities could significantly impact the availability of top-tier "trophy" office assets. For companies seeking to bring their teams back to the physical workplace, offering a well-located, functional, flexible, and comfortable environment serves as a compelling incentive.

A leading real estate research expert noted that employers are gaining more leverage in the labor market, a contrast to the pandemic era when numerous positions remained unfilled, allowing employees to dictate remote or hybrid work arrangements. The expert pointed to the rising national unemployment rate as an additional factor empowering employers. The rate stood at 6.9 percent last month, compared to 6.4 percent in June 2024. As the unemployment rate gradually climbs, employers may feel more confident in implementing stricter in-office policies without significant fear of mass resignations.

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Impact on Office Asset Tiers

This shift is anticipated to result in greater demand for office space throughout Canada, particularly for top-tier assets. Notable examples include Oxford Property Group’s The Stack and BentallGreenOak’s B6 in Vancouver. However, not all buildings offer the same high level of services and amenities, which is creating a supply squeeze at the premium end of the market. The expert suggested that conditions might even become favorable enough for the development of new AAA towers, provided large anchor tenants pre-lease a substantial number of floors. This remains a challenging feat even in optimal times.

Beyond the highest-end towers, middle-tier assets are also expected to benefit from this trend. If AAA-grade properties become fully occupied, the expert predicted a strong 12-month period for the leasing and occupancy of these somewhat less in-demand assets, as employees will still require a physical workspace.

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Vancouver Office Vacancy Rates and Classifications

According to a national real estate firm's data, the AAA vacancy rate for Vancouver’s downtown core was 6.3 percent in the second quarter of this year. For Class A properties, the vacancy rate was 11.9 percent, while Class B stood at 14.6 percent, and Class C at 16.4 percent. Rates vary across other parts of the city.

While universal standards may differ, leading real estate classifications define AAA or “trophy” offices by elements such as iconic architecture, premium finishes, cutting-edge building systems, concierge services, and extensive amenities. These properties are typically situated in central business districts with convenient transit access and are often occupied by major tenants with strong credit ratings. Class A, B, and C properties rank lower on the scale in terms of age, quality, location, infrastructure, and condition, though each category serves specific use cases and tenant types.

The overwhelming demand for truly premium office space is directly linked to return-to-office initiatives. The emphasis is on providing employees with a superior experience, moving beyond the traditional "grey cubicle" environment.