Shopify has abandoned its plan to move to the newly built 254,000-square-foot space at The Well. The Canadian e-commerce giant clarified that the sudden change of plans is not caused by increased expenses but because of its remote-first approach.
“We have a bold vision for the future of work at Shopify, and are no longer a workforce that centres around a physical workplace for day-to-day work,” Shopify spokesperson Alex Lyons told Toronto Star in an email interview.
“We recently made the decision not to move forward with developing a new office space at The Well. Shopify continues to value highly intentional, in-person gatherings, and will continue to do so at our primary Toronto space located at King Portland Centre, with plans to further develop and expand into one central space to accommodate our needs,” Lyons added.
Shopify is paying the rent and it will not be allowed to break its lease, nor is it trying to break its lease. Shopify is a reputable and honourable organization, as are Allied and RioCan.
Michael Emory, Cheif Executive, Allied
Lease Agreement
According to The Globe and Mail, Shopify is bound by a 15-year lease agreement that obliges it to pay regular rent for the office space. The Well Tower, developed by Allied Properties and RioCan, has a huge office space, a residential area and a retail skyscraper. Allied and RioCan have the right to sue Shopify in case of not paying rent.
Lyons didn’t clarify if Shopify is willing to pay a break fee or regular rent after backing out from moving its office. However, Allied chief executive Michael Emory told The Globe and Mail that the e-commerce company has not defaulted its lease obligations.
“Shopify is paying the rent and it will not be allowed to break its lease, nor is it trying to break its lease. Shopify is a reputable and honourable organization, as are Allied and RioCan,” Emory said.
When Shopify Wanted Big Office Space
It all started in 2018 when Shopify announced that it would acquire 254,000 square feet of office space at The Well. The company is allowed to expand its asking possession to 434,000 square feet. The current office space used by Shopify — the King Portland Centre — is also co-owned by RioCan and Allied.
On May 21, 2020, Shopify CEO Tobi Lutke announced complete remote work on Twitter, calling the company “digital by default”.
Until recently, work happened in the office. We’ve always had some people remote, but they used the internet as a bridge to the office. This will reverse now. The future of the office is to act as an on-ramp to the same digital workplace that you can access from your #WFH setup.
— tobi lutke (@tobi) May 21, 2020
“As of today, Shopify is a digital by default company. We will keep our offices closed until 2021 so that we can rework them for this new reality. And after that, most will permanently work remotely. Office centricity is over,” Lutke tweeted.
“Until recently, work happened in the office. We’ve always had some people remote, but they used the internet as a bridge to the office. This will reverse now. The future of the office is to act as an on-ramp to the same digital workplace that you can access from your #WFH setup,” he added to the Twitter thread.
It was the time when the coronavirus pandemic gripped businesses worldwide, forcing them to shut offices amid lockdowns. Shopify was one of the first companies to offer complete remote work.
Toronto Office Space Market
Toronto Star is among several companies that shifted their offices to the Well. It was earlier located at 1 Yonge St. Now when the pandemic is over, most companies have returned to physical workplaces but still leaving a lot of space vacant. According to Colliers Canada, the office vacancy rate rose from 8.6 percent to 10.1 percent in the third quarter. Colliers Canada compiled the research data compiled over the past year.
Another set of data reported by The Globe and Mail claims that Toronto’s market for office space is in deep trouble. The research conducted by Altus Group claims that 11 office towers with a combined space of 6.7 million square feet have been built in the last two years. The Canadian Imperial Bank of Commerce is among some big organisations that have sublet their office spaces.
The Altus Group research added that the office vacancy rate in Toronto reached 15 percent by the month of September. It was just 4.2 percent in 2019. The office vacancy rate was even lower during the 2008 Great Recession. The data added that 14 new buildings are under construction in Toronto, which would add 4.86 million square feet of office space.
Struggling Tech Sector
Tech companies are most hit by the ongoing microeconomic conditions. Shopify also had to lay off 10 percent of its workforce in July. CEO Lutke blamed it on an overestimated “bet” on booming e-commerce in 2020.
“Shopify has always been a company that makes the big strategic bets our merchants demand of us – this is how we succeed. Before the pandemic, ecommerce growth had been steady and predictable. Was this surge to be a temporary effect or a new normal? And so, given what we saw, we placed another bet: We bet that the channel mix – the share of dollars that travel through ecommerce rather than physical retail – would permanently leap ahead by 5 or even 10 years. We couldn’t know for sure at the time, but we knew that if there was a chance that this was true, we would have to expand the company to match,” he said in a blog published on news.shopify.com.
“It’s now clear that bet didn’t pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead. Our market share in ecommerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that,” the CEO added.
Shopify’s Efforts
However, Shopify announced a series of changes and new launched to come out of troubled waters. In August, it launched Shopify Collabs to connect creators with Shopify merchants. Then it launched Shopify Capital in Australia.
In September, Shopify rolled out Shopify Markets Pro and Shopify Translate & Adapt to boost cross-border sales. Later in the month, Shopify announced a new model of compensation for its employees and launched POS Go, its own hardware device for physical retail selling.
According to Toronto Star, Shopify’s shares have plunged over 70 percent this year.
