Why real estate giant Hines thinks the office needs to be more than just a place to work

Getting people back to the office means companies need to offer sustainable, amenity-rich spaces, Hines executives say

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The goal of the office used to be to get the job done. Now just getting people to come in is half the battle. That’s part of the calculus behind the “magnets, not mandates” approach global real estate firm Hines Interests Ltd. Partnership has been taking in building its post-pandemic portfolio: to get top talent, companies need sustainable, amenity-rich spaces, particularly those that fit Hines’ “T3” concept — timber, transit and technology. The Financial Post’s Shantaé Campbell spoke to Hines Canadian head Avi Tesciuba and senior managing director Syl Apps about how Hines supports hybrid work, their T3 portfolio and the impact of rising interest rates in the commercial space. This interview has been edited and condensed for space and clarity.

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FP: When the pandemic hit, everyone seemed to think work from home was going to be temporary. But the return to the office hasn’t unfolded as expected. What changed and how do you see the home/office balance playing out going forward?

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AT: Our tenants want people to come back to the office now more than before. I think there was a period during the pandemic where they thought, “Hmm, the efficiency isn’t actually that bad,” and it was obviously a big shock to everyone to stay at home, but they were positively surprised by the benefits of technology and that lasted for a while. But, having been away from the office for some time, I think more and more are realizing the benefit of being together. On the employer side, I think about things like culture and loyalty. I think not as much on a productivity level but more the cultural aspect, the mentoring, the accidental interaction and learning that happens when you’re in person. Tenants are now really thinking about real estate as a strategic asset and they’re using it to help get their employees back in the office. Some of what we provide in our buildings are amenities like gyms with high-end equipment, a bike room where you can shower, towel service and food halls — again more convenience than you’d have at home. There are tenant lounges where you can work in a different setting. You don’t have to be at your desk all day. You can go sit on the couch or the community table, bring your laptop. We have rooftop patios, again changing the environment and making the office a pleasant experience, something that’s different than working from home.

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A rendering of a Hines T3 building.
A rendering of a Hines T3 building. Photo by Kilograph

FP: Is hybrid playing out differently in Canadian than in U.S. markets?

AT: I don’t think you can even generalize Canada because each market is different. Many U.S. cities and even Western Canada are coming back to the office. The number of days a week in Toronto isn’t as high as what we’ve seen in the U.S. or Western Canada, frankly. But it is happening, and I think it will follow the trends of the U.S. to come back to the office more. Will it be five days a week? I think it will but I don’t think in the immediate future from what we’re seeing today. Some tenants have gone back five days a week, but I think they’re still the exception.

FP: Hines is pursuing a “magnets, not mandates” approach to office spaces. What does that mean and what is the best example of a building where you are implementing it?

SA: Those are high-quality new buildings, highly amenitized, employee focused, well located and adjacent to transit. Those are magnet buildings that are pulling tenants and pulling people towards them as opposed to older unamenitized or poorly located  “commodity” buildings, which are shedding tenants and shedding employees. So that’s what we mean by magnets. By providing that kind of employee-centric environment in our buildings, including all the way down to having community managers as part of our property management staff who actively program and activate our buildings and the community for the employees working on them on a daily basis. That is what is pulling tenants and employees back into those offices. I think a really simple and relevant example in Toronto is CIBC Square at 81 Bay Street, which is exactly that. It’s a high-quality, highly amenitized, well-located building, across the street from Union Station — the most connected transit hub in the city. It has a suite of common areas and spaces both indoor and outdoor, along with active programming and management to create a high-quality environment for customers and employees.

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CIBC Square at 81 Bay Street in Toronto.
CIBC Square at 81 Bay Street in Toronto. Photo by Della Rollins/Bloomberg

FP: What were the challenges in traditional office spaces that led to the development of the T3 concept, and how has T3 addressed these issues?

SA: One of the biggest challenges that we know our customers face every day is attracting and retaining high quality talent in the market in which they operate. And how we really view our T3 concept is as talent retention tools for our tenants. People love being in these buildings. The authenticity of the old brick and beam but all the qualities of a brand new building. The other thing that I think is really critical, both from the Hines perspective as well as from our customer perspective, is the sustainability component. It goes without saying that building with timber as opposed to concrete and steel results in a significant savings in embodied carbon in the building, which really allows our customers to live their sustainability values through their real estate decisions.

FP: How has the T3 concept been tailored to suit the Canadian market, and what distinctive elements set it apart in the Canadian context?

SA: In general we look to tailor all of our projects not just to the city but to the micro location of the neighbourhood in which they sit. Our T3 Bayside project, which is on the Waterfront in Toronto, is very different from a design aesthetic perspective from our T3 Sterling project which is on Sterling Road in the Junction Triangle neighbourhood of Toronto, which is much more of an industrial neighbourhood. It’s not necessarily that the project is customized for Canada but very specifically for the micro locations to serve our customers in those neighbourhoods and in those buildings.

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FP: What impact are higher interest rates having on the commercial real estate sector? Will this put a stop to new construction?

SA: I think there’s a couple of ways that (interest rates) flow through the real estate industry from a development perspective or construction perspective. Higher interest rates directly flow through to a higher cost of financing construction and hence a higher cost to deliver that end project. That’s fairly straightforward math. In terms of whether new construction stops or not, it’s more a function of the demand and revenue side of that equation — but when interest rates are higher, construction costs are higher. Interest rates also flow through the capital markets side and the cap rate that markets will assign to a given asset or asset class in a specific market. In theory, and it’s not always the case in practice, but in theory, higher interest rates should lead to higher cap rates. I think there’s uncertainty in the market right now in terms of the effect of current rates, and the sustainability of those rates, how long or not they will be at current levels and how that will impact capital markets and cap rates in Canada.

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