Despite Threats from Automation and Fintech, Financial Services Expected to Remain Significant Driver of Office Space Demand

Financial Services firms will need to increasingly invest in modern, collaborative workplaces in effort to hire necessary tech talent

Toronto – December 9, 2016 – A new digital era, with increasing automation and growing competition from Fintech firms, has traditionally been presented as a threat to Financial Services firms and their need for office space. However, according to a new report co-authored by GWL Realty Advisors and CBRE Limited (‘CBRE’), Banking and the new digital era: What’s next for Financial Services in Canada?, the financial services sector will continue to be a key driver of office space demand in the long term.

As finance and technology become increasingly integrated, the financial services sector is hiring a new generation of tech talent. To compete for this talent, financial services institutions are reassessing their workplace strategies to create office spaces that meet the evolving demands of technology, a new generation of employees, and that act as a tool for employee retention and attraction.

“Technology is set to have a profound effect on the financial services sector in Canada. The traditional analysis which concludes that we will see a retrenchment in the amount of future office space financial services firms will occupy is over-simplified. It’s undeniable that increasing automation has the potential to lead to some job losses within back-office functions. Nevertheless, these losses are being offset by the growth in compliance and risk management roles as well as a new focus on attracting technology employees. In the digital era, banks, insurance firms and wealth managers are all set to look, feel and act more like technology firms.

“This means that financial services companies will increasingly need to hire new talent within software development, creative industries, digital media and data science. This type of talent is already in the highest demand, so it’s highly unlikely they will settle for working in a ‘cube-farm.’ This high-value talent has an even higher expectation for their office environment, and want a workplace that offers a variety of work settings and a sense of community to fit in with their highly collaborative way of working. This will cause financial services firms to increasingly invest in workplace strategies to create office spaces that are flexible, focused on collaboration, sustainability and health and wellness. As result, the focus will shift from simply gaining the most effective use of office space towards how the office can be used as a tool for attraction and retention of the best talent,” commented Ray Wong, CBRE’s Head of Research in Canada.

This shift in talent requirements means that financial institutions are looking to recruit from outside their typical channels. This includes opening satellite offices, incubators and innovation labs near universities and other technology hubs addressing the needs of employees for live, work and play environments. This trend could also drive office demand in secondary cities and locations with burgeoning technology and education clusters.

However, Toronto is expected to advance its central position within Canada’s Financial Services sector. Toronto, as Canada’s leading Financial Services hub, has continued to grow over time with over half of all new job growth in the sector occurring in the city, directly employing over 243,000 people.

As such, financial institutions have been a key driver of office demand and development with the sector making up 39.6% of the Downtown office market. In the last two major development cycles, 2009-2011 and 2014-2017, banks and related groups comprised 31.1% and 42.0% of all pre-lease commitments respectively in the new office towers. With an additional 10,000 financial services jobs forecast to be added in Toronto by 2020, its position as a dominant occupier within the Toronto office market is expected to continue.

“This research re-affirms our long-term investment confidence in the Downtown Toronto office market, where Canada’s financial services sector is headquartered. Firms are incorporating new technologies and approaches and bringing in new types of employees to do so. They continue to need office space. Meanwhile other, smaller fin-tech firms are carving their own niches, or collaborating with banks, and creating a new office tenant type in the process,” commented Wendy Waters, Senior Director, Research Services & Strategy at GWL Realty Advisors.

The increasing concentration of Canada’s Financial Services sector within Toronto has led it to become a natural hub for the Fintech sector. Toronto is home to over 60 of Canada’s approximately 100 known Fintech firms that currently occupy approximately 260,000 sq. ft. of office space in the city. “While it is not currently a major driver of office space, there are signs that it is poised for substantial growth. Venture capital funding is often correlated to office demand and Canadian Fintech firms have attracted over $1 billion in funding since 2010,” added Wong.

While typically presented as a threat to Financial Services, the reality is more nuanced. While some Fintech companies compete with traditional financial institutions in core market segments such as wealth management, payments and credit lending, others are more collaborative and provide new and complementary services to the sector.

“Financial services companies are increasingly looking and acting like technology companies who happen to do banking or wealth management work. This will have implications for how we design and upgrade office buildings. As they plan their future office space needs, financial services tenants increasingly express a desire for similar amenities and features as technology companies: Fitness centres, end-of-trip commuting facilities, distinctive restaurants or coffee bars in the building, and private or bookable outdoor spaces like roof-top patios,” concluded Waters.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2015 revenue).  The Company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide.  CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.  Please visit our website at www.cbre.com.

In Canada, CBRE Limited employs approximately 1,885 people in 20 locations from coast to coast. Please visit our website at www.cbre.ca.

About GWL Realty Advisors
GWL Realty Advisors Inc. is a leading real estate investment advisor providing comprehensive asset management, property management, development and specialized real estate advisory services to pension funds and institutional clients. GWL Realty Advisors manages more than $16.9 billion in assets including $1.0 billion in development projects across Canada. For details about GWL Realty Advisors Inc., visit www.gwlra.com.