MONTREAL — While Montreal downtown office vacancy rates have been rising slightly, real estate activity continues at a pace not seen for many years and the new investments could change the city’s face significantly over the next decade, says a new report by property adviser Newmark Knight Frank Devencore.
Combined Class A and B office vacancy rates rose from six per cent in 2012 to 6.8 per cent in 2003, indicating 3.2 million square feet of space available for lease or sublet at year-end, the report said. Combined, Class A and B space totals 46.4 million square feet, compared with downtown Toronto’s 62.8 million square feet.
“New projects are being developed and others are about to begin construction or are pre-leasing and the changes will affect both the downtown core and bordering areas and provide tenants with more leasing opportunities and more negotiating leeway,” NKFD’s CEO Jean Laurin said in an interview from New York.
“Former industrial zones are being transformed into new neighbourhoods with condo, office and retail projects,” he added, “and the appetite for new prime space remains strong with new towers being leased fairly rapidly,” he said. “The trend in vacancies has continued into 2014.”
Major projects being completed next year will raise vacancy rates as existing tenants move to new quarters, but improving economic growth will gradually offset this and Canadian and international investors are seeing many new medium-term opportunities, Laurin said.
In the top A category, vacancy rates reached seven per cent in 2013, up from 6.3 per cent a year earlier, based on 51 buildings surveyed and indicating 1.6 million square feet available for lease or sublet at year-end. Class B vacancies were 6.6 per cent, up from 5.6 per cent (159 buildings), indicating 1.5 million square feet available.
The city’s main office corridors showed some wide variations for A and B classes combined, the report said. René-Lévesque Blvd. vacancies rose from 7.9 per cent to 11.2 per cent or 42 per cent, due to E-Commerce Place tenant exits. McGill College Ave. vacancies rose 41 per cent for similar reasons, but Cité de Multimedia vacancies slowed to 13.6 per cent. Sherbrooke St. was stable at 11.5 per cent and de Maisonneuve Blvd. at 5.5 per cent while Old Montreal dipped slightly to 6 per cent.
NKFD notes several key market factors, including 200,00 square feet becoming available at the Place Ville Marie with Deloitte LLP’s move to Cadillac Fairview Corp.’s new Bell Centre tower, Kevric Real Estate Corp.’s Tour Aimia at Victoria Square, Broccolini Construction Inc.’s L’Avenue 50-storey condo-office tower near the Bell Centre, a 500,000 square feet mixed-use building near the Quartier des Spectacles, 900 De Maisonneuve West, Westcliff Group’s proposed tower at Place Victoria and a 1.2 million-square feet office tower by Canderel Group and the Fonds immobilières de Solidarité FTQ near the Quartier des Spectacles.
In the medium term, office, condo and commercial projects will link Griffintown to the downtown core and the area between McGill St. and University Ave., south of Saint Jacques St., will become a focus for massive development, the report added.
Laurin said the lease decision-making cycle is lengthening as tenants embrace new technology and develop ways to use space more efficiently. Also, many older Class A and B buildings need updating and heavy renovation to attract new tenants, he added, citing the Caisse de dèpôt et placement du Québec’s $100 million Place Ville Marie program.
Canadian investors from outside Quebec and from Europe and the United States are the most prominent investors and will likely remain so in the medium term, he added.
Montreal-based NKFD operates nationally and is part of Newmark Grubb Knight Frank, one of the world’s leading commercial property advisory groups.