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Last Updated: October 2020
Key Market Statistics
Downtown Montréal - All Office Classes (Q3 2020)
(NOTE: Availability rate references space contained within a building that is currently being marketed as available for lease with an immediate or future possession date. Vacancy rate references space contained within a building that is currently physically unoccupied by a tenant.)
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- After a record year of positive absorption in 2019, the downtown office market experienced its first wave of negative absorption due to the pandemic. The downtown market recorded nearly half a million square feet of negative absorption in the third quarter of 2020, something which we haven’t seen since 2016.
- The downtown office market has also seen an increase in the number of office sublets, as several companies are already looking to reduce costs and optimize occupancy. Thus, in the third quarter, the total area of sublease space increased to 569,796 sq. ft. with an additional 267,214 sq. ft. added to the market which represents an increase of 46.9% compared to the previous quarter. Some users who are looking for "turnkey" spaces could benefit from this increased supply.
- After having reached an availability rate of 8.8% in the 1st quarter of 2020, the lowest rate in 5 years, the market saw a substantial increase in its availability rate to reach 10.7% in the 3rd quarter as a result of the pandemic. This was particularly true for B-class buildings.
- As the city grapples with the economic impact of the pandemic as well as restrictions imposed by the provincial government and health authorities, rental rates for office space have remained relatively stable so far. However, we expect increased availability which will put pressure on landlords, where some will be tempted to offer more flexibility and / or incentives as an alternative to lowering rents. We can already see this phenomenon in certain secondary sub-markets.
- The pandemic has forced an acceleration in the adoption of telework, but the consensus is that it is too early to determine the exact impact of this phenomenon. It is clear that teleworking will be part of the business models of companies going forward; however, the proportion will vary depending on the industry, company culture and its assessment of productivity. While telework is an attractive solution at the operational level, most executives agree that growing a business requires some degree of physical interaction and synergy between work groups. Also, it will be interesting to see how technology evolves and can offer new solutions.
- Suburban markets, for their part, did well and saw sustained activity thanks to the phenomenon of satellite offices. The construction work of the REM had started this trend in Laval before the pandemic, due to the closure of the EXO Deux-Montagnes line. On the South Shore, we are also observing this trend due in part to the travel challenges anticipated by the restoration of the Louis-Hippolyte-La Fontaine tunnel, which will span over a period of 4 years until 2024 according to the initial schedule.
- Maya HTT signed a new lease for 31,000 SF at 1100 Atwater
- Double Negative Inc. took on 66,000 SF at 1155 Metcalfe
- Devimco finalized the purchase of a portion of land adjacent to the Quartier des Lumières, that Groupe Mach had previously bought from Radio-Canada in 2017. Devimco plans to build a 15-storey condo building.
Availability Rate (Class A and B) - Downtown Montréal
Source: Altus Insite (Q3 2020)
Average Gross Rents (Class A and B)- Downtown Montréal
Source: Altus Insite (Q3 2020)
Market Statistic (all office classes)
Source: Devencore Research (Q3 2020)
Despite all the measures put in place by the Government to ensure a safe working environment, a large majority of companies still operate remotely. According to a survey by the Chamber of Commerce of Metropolitan Montreal, less than 20% of workers are currently present in the office and they do not expect to reach the 25% milestone before January 2021. It is important to mention that many companies give the choice to their employees not to return to the office until the end of the year and even the 1st quarter of 2021; the reality is that many companies cannot provide a safe work environment that meets distancing standards due to their current layout and density of employees.
The market condition has put real estate decisions on hold for many of the companies occupying office space in the Greater Montreal. Downtown Montreal is particularly affected and the increase in the availability rate in recent quarters is proof of this. Many of the transactions that have taken place in recent months have been for short-term leases and often consisted of short-term renewals. At present, there is no significant reduction in rental rates, thanks in particular to the various government rent assistance measures for businesses. However, as the availability of space continues to increase, the market will become more competitive. It is expected that there will be more flexibility offered by landlords in the coming months. In secondary markets, we already note that some landlords are more open to negotiation.
In the absence of workers in downtown Montreal, the city continues to transform with various projects underway in several neighborhoods, the erection of new residential towers and the construction of REM stations. Although the current health crisis is challenging, Montreal has already gone through several crises in the past and it has recovered each time thanks to the tenacity and solidarity of its inhabitants and economic players. In fact, before the pandemic struck, the city had experienced an unprecedented level of activity in twenty years and the downtown area was at the heart of this ecosystem and this economic and social dynamism. Downtown Montreal therefore has a key role to play in the city's economic recovery and must be at the center of everyone's concerns. To attract workers back to the city, all stakeholders in economic, social, cultural, community and government activity will need to sit down at the same table to prepare for the recovery in the coming months. Each crisis represents an opportunity to redefine the city of the future and this is no exception: it is everyone's responsibility to work together to make it an even more attractive city for its workers as well as for local and foreign investors. On a positive note, an executive of a national REIT has observed that the Montreal market has been the most active for them across the country.