A look at real estate | Downtown offices: the worst while waiting for better

Every other Thursday, The Press offers a look back at what is attracting attention in the field of residential and commercial real estate.

Like a disaster unfolding in slow motion, the availability of offices in the Montreal region stands at practically 20% of inventory in the fourth quarter of 2023, according to the most recent market report prepared by the real estate agency Avison Young.

What was announced in The Press from May 2020 by the broker Laurent Benarrous is becoming a little more concrete every day.

A graduate of HEC Montreal, Mr. Benarrous anticipated that the office availability rate would increase in Montreal as occupants reduced their real estate footprint by 10 to 20% upon renewal of their lease.

Consult the article “Office towers: will the city center retain its appeal? »

“The leases have an average duration of 6.5 years,” he then indicated. Each year, on average, 15.8 million square feet of leases expire and must be renewed. » According to his clever calculations, at least 2 million square feet per year would become available through renewals.

The equivalent of 21 empty turns

Four years later, the equivalent of 21 skyscrapers the size of 1000 De La Gauchetière is available on the market in the Montreal region, including the equivalent of 11 towers of 1 million square feet only in downtown. “This is among the highest availability rates we have seen in Montreal,” concedes, in an interview, Patrick Laurin, general manager of Avison Young in Montreal.

“New sublets were added at a steady pace in 2023, suggesting that space rationalizations are not complete,” reads Avison Young’s market study. More large occupiers would need to switch to growth mode, and not rationalization, in order to see sublet space decrease significantly. »

Despite everything, Mr. Laurin sees a glimmer of hope. His agency is preparing the report for the first quarter of 2024. Oh happiness! The availability rate fell slightly, going from 19.4% in December 2023 to 18.5% in March 2024, for the first time in many moons. “We will have to see over time if this is the start of a new trend,” he says, crossing his fingers.

Otherwise, rental activity has accelerated in recent weeks, notes Luciano D’Iorio, regional president of CDNGlobal Québec.

“The AAA category is doing very well,” he says. This expression brings together the most modern and spacious offices, according to him. Specifically, he means 1000 De La Gauchetière, 1250, René-Lévesque, Place Ville Marie, the Deloitte Tower and the new head office of the National Bank.

In the “prestige” category, the availability rate was only 9.5% in December 2023, half the rate for the market as a whole, according to figures compiled by Avison Young.

Elsewhere than in the prestige category, it is more difficult. Mr. D’Iorio nevertheless expects that tenants of dilapidated buildings will now eye up higher level buildings, taking advantage of an advantageous location such as, for example, 1100, boulevard René-Lévesque and 1981, McGill College.

“It will be the turn of the tenants of category B buildings (of lower quality) to be courted to fill the numerous premises for rent in category A buildings (of better quality without however being considered prestigious), and this, very competitive costs,” corroborates Avison Young in his study.

Demand remains timid, however, for offices located in more outlying locations such as the Alexis Nihon complex, at the west end of the city center, and the Nordelec, in Pointe-Saint-Charles, underlines broker Luciano D’Iorio.

The situation in the suburbs

The observation also applies to Laval and the South Shore. “In the suburbs, the race towards quality has favored recent buildings, close to a metro or the REM. Even if the net rents of these sites are closer to those of the city center, the taxes and operating costs remain lower,” indicates Avison Young in his document.

It is in Laval that the office availability rate remains the highest in the Montreal region, at 23%. Nevertheless, Groupe Montoni managed to rent 90% of the 420,000 square feet of offices at Espace Montmorency, which are connected to the Montmorency metro station by an underground passage like in the city center.