Downtown Montreal | Bleak prospects for the office

The real estate industry met Thursday to bury the hatchet with the city of Montreal and learn that the economy is doing well. With office towers, however, the situation is going in the opposite direction. A pessimistic scenario presented by real estate experts predicts that the availability rate of downtown office towers will increase to 25% by 2027.

Posted at 6:00 am

Andre Dubuc

Andre Dubuc
The press

The office is decidedly suffering from the pandemic, even as workers are quietly returning downtown.

“There’s still work to be done to get people back downtown,” warned Marie-France Benoit, director, market intelligence for Canada at real estate agency Avison Young. She was speaking to an audience of developers at the Montreal Real Estate Summit held at the Palais des Congrès on Thursday morning.

She teamed up with Sylvain Leclair, CEO of Groupe Altus. Together they drew a portrait of the real estate market in Montreal after two years of the pandemic.

In summary, the residential rental sector and the industrial sector are doing wonderfully, while shopping centers and offices are suffering.

The office availability rate in the city center is currently just under 17%. Before the pandemic, it was below 10%.

An availability rate includes vacant premises as well as other premises immediately available for lease or sub-letting and for which the owner-manager continues to receive rent. In comparison, a vacancy rate is only interested in vacant premises that are not rented out.

An increase in the availability rate is often the prelude to an increase in the vacancy rate.

Contrary to popular belief, Altus experts have found that the quality of offices, A or B, hardly matters: both categories, the newest and the oldest, suffer equally from post-COVID symptoms.

In view of the deteriorating market conditions, the downward pressure on rental price levels is increasing. The effective net rent, which remains in the landlord’s pocket after paying taxes, utilities and courtesies to tenants to persuade them to sign the lease, has already started to decline. It’s dropped below $14 per square foot… and it’s probably not over yet.

Mr Leclair outlined two scenarios for the next few years based on the popularity of telecommuting. The first requires occupants of downtown offices to release 20% of the occupied space at the end of their lease. His pessimistic scenario assumes that 30% of the space has been freed up.

His two scenarios consider employment growth equivalent to 25,000 m of employment⁠2 offices per year. Still, it clearly won’t be enough to stop the uptick in office availability.

According to the first scenario, the availability rate will increase to 21.4% by 2027. The worst-case scenario pushes availability down to 25% of the total downtown office stock.

By 2027, the National Bank will have taken possession of its new 100,000 m2 and will have finally vacated its currently scattered downtown offices.

Apparently, Mr. Leclair reminded that these were simulations and that reality could be different.

The proportion of remote work offers is increasing

However, recent signs suggest that the reality of work from home will survive the pandemic, whatever Elon Musk thinks.

According to an indicator presented by Marie-France Benoit, who searches job vacancies on sites such as Indeed, 15% of jobs advertised in financial services are offered through telecommuting. In the technology sector, the phenomenon affects almost 3 out of 10 advertised jobs. Before the pandemic, only 3% of the advertised jobs in these two sectors were teleworking.

“Even if the economy is doing well, even if jobs are being created, that doesn’t mean that the demand for offices will increase at the same rate,” explained Mr.me Benoit to his audience.

“The hybrid formula [combinant travail au bureau et en télétravail] is here forever,” added Mr. Leclair.

The good news is that Montreal’s economy has resumed growth. The increase in job postings in the last two years in the technology sector is 29%. In Toronto the increase is 62% and downtown doesn’t fare much better.

Employment growth is also evident in financial services. The number of job postings in Montreal has increased by 39% in the last two years. On the side of the country’s financial capital, the increase is 43%.

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Decline in downtown pedestrian traffic since the pandemic began on May 23, 2022

AVISON YOUNG VITALITY INDEX


PHOTO PHILIPPE BOIVIN, SPECIAL COLLABORATION

The office is not yet suffering from the pandemic, even if workers are quietly returning downtown.

space for dialogue

Since the passage of the Diversity Bylaw (20-20-20), developers and the City of Montreal shook hands in a dispute at Thursday morning’s Montreal Real Estate Summit.

The summit had invited Mayor Valérie Plante to address real estate developers on Thursday morning. In addition, Luc Rabouin, Head of Economic Development at the City Executive Committee, shared the podium during a workshop on collaborative partnerships with Laurence Vincent, President of Groupe Prével.

The poster promised since Mme Vincent had made a notable outing against the city at the end of April, during a forum organized by the Montreal Metropolitan Chamber of Commerce, in which Mr. Rabouin precisely attended.

In her speech, the Mayor took the trouble to appreciate the initiative of the project promoters who, last Tuesday, presented a common vision for the development of the Bridge Bonaventure sector, which, however, differs significantly from the vision proposed by the municipal authorities.

“Condensation has its place,” she added. “Height and density will be there if we want to build complete living environments,” she continued.


PHOTO DAVID BOILY, THE PRESS

Valérie Plante, Mayor of Montreal

The mayor also recalled the city’s initiatives to make municipal services more efficient with regard to the real estate industry. Those elected spoke of the relief cells, a kind of advisory tables that are to make recommendations in this direction in the autumn. She also emphasized the establishment of a tactical team, including developers, to find solutions to build affordable housing.

“We need to keep talking,” she agreed.

expressway

For his part, Luc Rabouin, Mayor of the Municipality of Plateau-Mont-Royal, expressed at the workshop his desire to move forward in the autumn with the appointment of project managers whose task it is to become the city’s sole guarantors for the developers. The job of the project manager would be to carefully guide the project through the maze of municipal bureaucracy.

Mr. Rabouin is responding to a request from organizers that Laurence Vincent publicly expressed last April.

Alongside Mr. Rabouin on stage, Lucie Careau, Director of the Department of Urban Planning and Mobility of the City of Montreal, mentioned the possibility of opening a fast track for the acceptance of small real estate projects, so-called spacers, with the aim of speeding up the delivery of new homes.

Alternately Mr. Rabouin and Mr.me Careau used the forum to highlight the restrictions that provincial government is imposing on cities, which are contributing to the administrative delays so lamented by the real estate industry.

“We must work together”

The project promoters were not unmoved by this bona fide call for a constructive dialogue.


PHOTO DAVID BOILY LA PRESSE, LA PRESSE ARCHIVE

Roger Plamondon, Co-President of the Montreal Real Estate Summit

“We’re at a point where we need to work together,” said Roger Plamondon, president of the real estate group at Broccolini, one of the city’s largest developers and co-chair of the summit. “There are so many challenges to overcome that we all need to work together: the community, the private sector and the city. Recently we have received very positive signals from the city’s initiatives […] We won’t always agree, but we should be able to agree on a common core that will allow us to move forward,” he hopes.

The challenges Mr Plamondon points to concern the housing crisis, exacerbated by a shortage of new housing and declining housing affordability due to rising prices.

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