Downtown is a ‘wasteland’ while the rest of the city fares better — a look at Hamilton’s office market

Nearly three years ago, workers in Hamilton's office buildings went home one afternoon and many have never gone back.

The pandemic turned the office world on its head.

All of a sudden, jobs that seemingly couldn't happen at home were taking place at the kitchen table, virtual meetings were the new normal and the idea of a cubicle was far from most folks' minds.

But now as the world works to figure out what the future of the office looks like, local experts say they're waiting for the other shoe to fall" to know the entire impact on office leasing in the city.

As of early February, nearly 15 per cent of all office space in the city was sitting empty, according to data provided by real estate firm Colliers International. (Comparisons to previous years were not available.)

Some have even warned the worst is yet to come and changes need to happen to turn around the downtown core, which has been likened to a wasteland" for office space.

The Spectator has broken down what the numbers look like, where we are now and what we can expect for the office space market in the city.

By the numbers

When it comes to the vacancy rate for office space in the city, the number varies based on who you ask, what you're looking for and where you're looking.

First, we'll zero in on the core.

Hamilton economic development director Norm Schleehahn told The Spectator the city's downtown office vacancy rate - a number that only includes buildings of more than 5,000 square feet - sat at 13.29 per cent as of last year.

That's up from 11.9 per cent in 2019, according to the city. However, it has remained relatively stable over the last decade, with a peak vacancy rate of 14.1 per cent in 2015.

But how was the vacancy rate able to remain relatively steady amid the pandemic?

Evan Apostol, a broker with Blair Blanchard Stapleton Ltd., pointed to corporate leases, many of which range between five in 10 years in length and don't allow for any kind of immediate termination.

It's definitely not an industry that allows for knee-jerk reactions," said Apostol.

However, others in the market of office rentals and commercial property management believe that number is much higher.

Apostol told The Spectator Blair Blanchard Stapleton had estimated the vacancy rate for office towers in the core around 27.4 per cent in December 2020.

That survey, conducted by the commercial real estate brokerage, looked at nearly two dozen buildings - some of which have since been leased - and the Hamilton City Centre, which is in the midst of being demolished.

That number has likely shifted, noted Apostol, who was unable to provide more recent stats.

But what makes the numbers provided by the city and Blair Blanchard Stapleton so different?

While the city counts smaller spaces and government buildings, Blair Blanchard Stapleton focuses on large, privately held towers.

If you look at individual buildings, the rates are even more stark - particularly in those managed by Real Properties, which owns Jackson Square and the towers and has an overall office vacancy rate of 30 per cent.

Based on data provided to The Spectator, 100 King Street West - formerly known as the Stelco Tower - is 20 per cent empty, 120 King Street West is 33 per cent vacant and 51 per cent of the Robert Thomson Building, located at 110 King St. W., is without tenants.

Meanwhile, 1 James North is completely occupied by McMaster University.

However, if you zoom out and look at the entire city, the overall vacancy rate drops.

Colliers International told The Spectator the approximate availability rate for office space across the entire city sat at around 14.7 per cent as of Feb. 10.

Neither the city nor Colliers were able to provide The Spectator with a breakdown by area.

But according to Colliers International vice-president Doug Murray, the suburban office market for the city performs very well" compared to the downtown, which he described as a wasteland."

However, Murray noted that Hamilton had a terrible vacancy rate even before COVID."

According to Colliers, there is an estimated 6.3 million square feet of office space in Hamilton. As of Feb. 10, there were 247 active listings for office space in the city, totalling nearly 929,000 square feet.

Where are we now?

Gerald Asa, vice-president of Effort Trust, told The Spectator many companies that have office space in the city are stuck in a holding pattern" as they work to sort out what the future of work looks like.

That includes figuring out if staff need to be in the office, how often they can work from home and finding a middle ground between the two.

Those decisions may see large companies reconfigure their current space or leave their original spaces entirely for something smaller, but all of that is still evolving," said Asa.

However, Murray anticipates the worst is yet to come," as most long-term leases will end and organizations will opt for change as hybrid work becomes more permanent.

We're waiting for the other shoe to fall," said Murray. There is a lot up in the air right now about how this will play out."

Asa said whatever happens, the market will have to change and adapt to the new normal," but what that will look like remains unclear.

In the meantime, it's mostly business as usual - with some changes.

Real Properties leasing manager Jocelyne Mainville said while she has leased out an estimated 19,000 square feet of office space in the last two years, there have been fewer inquiries" overall from companies.

Mainville also anticipates a majority of their current tenants will slim down their office footprint when their leases are up.

Fingers crossed they just downsize, instead of leaving all together," Mainville said.

At Westinghouse HQ on Sanford Avenue North, building steward Tyler Cowie has had to get more creative with leasing.

The factory-turned-office building, which features a panoramic view of the lower city paired with airy, modern spaces, was opened in 2019 and as of early February, was almost entirely leased, with the exception of the sixth floor.

Cowie said while the top floor is occupied, it's not leased out in the traditional sense - instead, it's rented out to local graffiti artists on a month-to-month basis.

It was vacant and they needed a place to work out of," said Cowie. It's just nice to have someone up here."

At Forge and Foster, director of strategy and research Alex Manojlovich said a majority of their office spaces are fully leased, pointing to a handful of buildings on Frid Street that have occupancy rates ranging from 92 per cent to 100 per cent.

Cowie said if it wasn't for Westinghouse HQ's limited amount of parking, he could have had the entire building leased out twice over by now." Asa also raised issue with the lack of parking in the downtown as something that keeps companies away.

Murray said the city's growing housing and mental-health crisis has also hindered some investment" in the core, noting that he's heard from clients that their employees don't feel the safest."

Schleehan said the number of folks who have actually returned to their office spaces in the core continues to be an area of concern," noting that even if a space is leased, the workers may not actually be there.

He pointed to the need to ensure the businesses that depend on that foot traffic" can survive until the situation shakes out. A report on the state of office space in the city will go to council in the spring, he noted.

Greg Miklaszewski, the owner of the now-shuttered Oak Cafe, told The Spectator in an email that the lack of foot traffic from office workers was one of the reasons why he shut down his restaurant in Jackson Square.

A large majority of people have been working from home and are not coming back in the foreseeable future," wrote Miklaszewski.

What lies ahead?

But what does the future hold for some of the large office towers that dot the city's skyline?

One option is to convert them into residential units amid a national housing crisis. Already the old Canadian Red Cross office on King Street East is being converted to a men's shelter.

It's a move that's underway in a couple of cities across the country and being planned or debated in others, including Toronto.

The efforts to figure out how that may work in Hamilton have already begun, said Asa.

We have actually started that due diligence process by looking at plans and budgets," Asa said, speaking to the work being done at Effort Trust. It's a huge amount of work and it takes a long time to put a plan together ... and you have to have the right building to do it."

At Real Properties, those kinds of conversions are not at all feasible" due to the size and design of their buildings, noted Mainville.

However, Apostol believes the concept of the in-person office isn't going anywhere," even as virtual work has become increasingly common.

Apostol pointed to the kind of brainstorming and teamwork that happens when folks are casually chatting at their desks or sitting across from one another in meetings.

It's really hard to replicate that in a remote setting," said Apostol. It's underplayed a lot, but there is definitely something to it."

But in order to kick off an office renaissance" in the core, the existing buildings need to be rehabilitated or more modern spaces need to be constructed, noted Murray.

Otherwise, you'll just have this black hole that is downtown," he added. Hamilton's office market has a long way to go."

Fallon Hewitt is a reporter at The Spectator. fhewitt@thespec.com