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Last Updated: February 2021
Key Market Statistics
Downtown Montréal - All Office Classes (Q4 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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- Over the past 12 months, more than 1.3 million square feet have been added to the total inventory of available lease space in Downtown. This is fueled by a combination of sublease spaces as well as spaces that have not been renewed at the end of the lease. In Q4, the availability rate jumped from 10.7% to 12.1%. The last time that the market went above the 12% mark was in Q1 of 2018.
- The number of office subleases continued to increase in the last quarter to reach 853,032 square feet, a jump of 33.2% compared to the previous quarter. The majority of these sublet spaces come from companies in technology, media, entertainment and advertising. Meanwhile, the downtown core submarket was the hardest hit with more than half a million square feet of sublet space available at year-end.
- At the end of 2020, the downtown office market recorded negative absorption for a third consecutive quarter. Therefore, the year ends with a cumulative negative absorption of 727,424 square feet, which is in stark contrast to the previous year when the market set records for positive absorption just before the pandemic hit.
- Despite the marked increase in the availability of downtown office space, rental rates have remained stable in 2020. The pressure on landlords keeps mounting; their preference is to offer higher incentives than before the pandemic, but it is clear that rental rates will most likely decline. It will be interesting to see how this evolves throughout the year. We have already noticed that some landlords are showing more flexibility and are open to hearing from major tenants.
- Suburban markets, on the other hand, appear to have been less impacted by the effects of the pandemic and availability remains stable when compared to downtown. Some markets such as the South Shore even recorded a positive absorption during the 4th quarter of 2020.
- SAP Canada Inc. relocated to 5 Place Ville Marie with 65,000 SF
- Dentons renewed for 51,000 SF at 1 Place Ville Marie
- Marsh & McLennan also took close to 51,000 SF at 1 Place Ville Marie
- HSBC renewed 39,725 SF at 2001 McGill College
Availability Rate (Class A and B) - Downtown Montréal
Source: Altus Insite (Q4 2020)
Average Gross Rents (Class A and B)- Downtown Montréal
Source: Altus Insite (Q4 2020)
Market Statistic (all office classes)
Source: Devencore Research (Q4 2020)
Since the start of the pandemic, downtown Montreal has gone from a health crisis to an unprecedented economic crisis. While public health allowed 25% of employees to come to their workplaces, it was noted that office towers were occupied at less than 10% on average. For most of the year, remote work became the norm for the majority of businesses.
Although landlords have been able to continue collecting rents in almost 95% of cases thanks to various government rent relief measures, there has been a marked slowdown in leasing transactions. Tenants are questioning their future office requirements. Thus, short-term lease renewals were common in the last few months as occupiers took a wait-and-see approach. On the other hand, many tenants have started to rethink their workplace strategy to consider the popularity and widespread adoption of remote work. Some tenants are planning to reduce their current spaces by 20 to 30%.
However, remote work brings its share of challenges, both from an organizational and personal perspective. According to several studies and surveys, the vast majority of employees have a preference for a hybrid model where employees would share their working time between the office and home. The proportion of allocated time would be dependent on the type of industry and function.
With a hybrid workplace model, there are several scenarios to consider. One of these scenarios is the decentralization of office space. A large company might decide to locate its head office in downtown while having satellite offices in the suburbs. With the planned extension of the REM to the East-End, Laval and Longueuil, this could be part of the solutions to offer flexibility to employees and employers. The benefit would be to get closer to employees as well as customers while allowing workers to be able to telework 1 to 2 days a week. The head office would serve as a social, cultural, and professional anchor by providing employees with value-added services.
On the other hand, some companies that decide to reduce their total space could take the opportunity to relocate to a more prominent and high-quality building that is better suited to their activities. In the span of a few months, the market has evolved rapidly and conditions are now tilting in favor of occupiers. We are already starting to see opportunities for tenants who have initiated a strategic real estate assessment.
In fact, companies that have benefited from the acceleration and adoption of digital solutions due to the pandemic are in a good position to expand their operations and take advantage of market opportunities. Top-quality tenants are always very attractive to property owners.
We should note the arrival of vaccines from Pfizer and Moderna since December 2020, which is good news in the event of a gradual recovery of business activities. It is important also to keep in mind that the mode of business will be in a constant state of evolution especially once the vaccines have been distributed.
The economic revival of Downtown Montreal is also at the heart of the real estate community as well as political parties. The Chamber of Commerce of Metropolitan Montreal (CCMM) has been very proactive in organizing the “Relaunch MTL” project with the establishment of several action plans related to the main sectors of activity in the downtown area. Thus, the recovery of downtown Montreal will require the collaboration of all stakeholders, developers, investors, different levels of government as well as dedicated citizens who live, work and play in Montreal and who love their city.