Given Montreal’s buoyant economy, rental rates for downtown office space are not increasing as quickly as they should according to André Plourde, senior vice-president of Colliers International.
When you compare the rents for new Montreal office towers to those in Toronto and Vancouver, “you realize we’re in the American (Hockey) League while they’re in the National Hockey League.”
Plourde, who was speaking at the Montreal Real Estate Strategy and Leasing Conference on Oct. 2, said vacancy rates for downtown office space are starting to fall. However, that drop is not being reflected in a commensurate increase in office rents.
He said development projects along the corridor of the new REM light-rail system are partly to blame. Office towers are to be built at the sites of Devimco’s Solar Uniquartier development and the Dix30 retail and lifestyle hub in Brossard on the South Shore.
REM a “game-changer” in Montreal
The REM “is a game changer,” he said. “Brossard is very close to downtown so there are companies that will set up there” in class-A spaces for the same cost as class-B rates downtown.
He added Carbonleo’s planned Royalmount development at the midtown intersections of Highways 15 and 40 will be a “state-of- the-art project” featuring a circular office building with 70,000 square foot floor plates.
“Tenants that would otherwise rent downtown will go there.”
However, Max Francischiello, president of Asgaard Real Estate Services, said he is seeing rent increases across the board, whether in Mile Ex, Old Montreal or Brossard. “We are demanding more rent and we’re getting more rent due to a lack of inventory.”
Francischiello noted Toronto’s economy has been growing for 40 years and has become one of North America’s biggest.
“Are we going to close the gap? Not any time soon,” he said. “Are we 40 per cent cheaper? Yes. But we’ve been struggling for a long time. I think we’ve made a lot of (progress) in the last five, six years.”
By comparison, he noted it’s also extremely unlikely Toronto rents will ever catch up to those of New York City, or that New York rents will ever catch up to those in London.
Existing owners investing in assets
Francischiello said a new supply of office space “is pushing landlords to rethink, innovate (and) invest a lot of money on their biggest existing assets.”
The most obvious example, he said, is Place Ville Marie where Ivanhoé Cambridge is rethinking the common areas and food court and changing HVAC systems to keep up with market trends. Similar changes are being seen at the CIBC Tower and Tour de la Bourse.
Another building keeping up to today’s standards is the Sun Life Building, which last month became the first century-old building in North America to obtain triple platinum certifications within LEED, BOMA Best and WiredScore.
“As a result of all this, I think it’s a much better environment to be a tenant and to look for new space,” he said.
Montreal has a lower unemployment rate than Toronto and Vancouver, yet a substantially higher vacancy rate, said Erik Langburt, executive vice-president, Cushman & Wakefield.
Second-quarter office vacancy rates were at 2.4 per cent in Toronto and 2.6 per cent in Vancouver, said Brent Robinson, director of leasing at Placements Immobiliers Industrial Alliance.
“Obviously, Montreal’s in a great spot, but I don’t see how our vacancy levels are going to get that low, especially with our historical absorption numbers.”
Some firms choose Montreal over Toronto
Given that the availability rate for office space in Montreal is at 10.1 per cent, tenants looking for 10,000-20,000 square feet downtown have good opportunities, Robinson said.
Many foreign companies that can set up office space in Montreal or Toronto are opting for Montreal, said François Desjeans, executive vice-president and chief investment and asset management officer at Kevric Real Estate.
He gave the example of a Los Angeles company which opted for Montreal because rents per square foot were $15 lower and because it was easier to recruit labour and to design the workplace to its specifications.
“Factors like this will gradually put pressures on rents,” he said. “We’re really in a good place in Montreal.”
Desjeans added Kevric is very happy with its summertime acquisition of the 28-storey National Bank headquarters at 600 De la Gauchetière West.
The tower is in a “hyper-dynamic” neighbourhood that once served as the border of the business community, but is now moving southward toward Griffintown and Old Montreal.
National Bank building overhaul
A transaction has already been completed to lease one empty floor, 25,000 square feet. Desjeans said the building – which will be overhauled when National Bank vacates to its new headquarters at 800 Saint-Jacques Street West – will attract tenants from the suburbs who want to move downtown.
With tenants like We Work, Google and Shopify, “the whole Viger, De la Gauchetière corridor is becoming a tech alley or creative corridor,” Langburt said. “It’s certainly a sector to watch.”
Plourde said infrastructure work that includes the REM, new Champlain Bridge and Turcot Interchange and revamp of Ste. Catherine Street “is completely changing the face of Montreal.”
He believes rents are on their way up as some companies are making defensive moves to expand their office spaces because the market is tightening. There is also a flight to quality as companies chasing the same talent must offer their employees agreeable work environments.
“I am very bullish, very optimistic. I think we’re at the beginning of something.”