In its Real Estate Market Study published today, Newmark Knight Frank Devencore reported that vacancy rates in downtown Montreal’s Class “A” and “B” office buildings have increased significantly over the past six months, from 6.8 per cent to 8 per cent. Availability rates–which take into account the office space that may be occupied but is available for lease or sublet–have climbed even higher, and currently exceed 12 per cent.
“A number of factors account for this increase in availability,” said Jean Laurin, president and CEO of Newmark Knight Frank Devencore. “New buildings have been, or are about to be, delivered to the market. As a result, the total available office inventory has grown by approximately 400,000 square feet. Additionally, a number of industrial properties have been redeveloped and are now offering office space, which is a trend we have been watching take shape for a few years.”
Redeveloped industrial properties outside of the downtown core are attracting tenants who might otherwise have leased downtown office space.
“Driving some of these tenant migrations into redeveloped space are fundamental questions of cost,” Laurin said. “Many companies are reviewing how they use space and are re-evaluating their occupancy standards. The repurposed office spaces generally offer less expensive rents, good services, and can provide more interesting work environments for employees, a key consideration when hiring and retention strategies come into play.”
Laurin also noted that there is an increasing amount of sublease space coming onto the market, a trend attributable to the new towers under construction as well as the recent moves that have been announced by major tenants.
“Current market conditions have improved tenant leverage considerably. However, in order to take the fullest advantage of the options that exist, large tenants need to assess their occupancy needs much farther in advance than was once the case. Developing a strategic occupancy plan five years before a lease expires is not unusual; even smaller tenants should initiate the process at least three years before negotiating a new lease or renegotiating an existing one,” Laurin concluded.
In Canada’s major cities over the past year the combined Class “A” and Class “B” office vacancy rate has risen from 4.9 per cent to 6.0 per cent. A primary reason for this increase is the addition of new inventory. Twelve developments were added to the market inventory over the past year, representing approximately 2 million square feet of additional space. As space in the new developments is leased, vacancy rates in older Class “A” buildings are trending upwards. Many landlords are marketing these office spaces more aggressively, so this is where tenants have an opportunity to secure the most favourable leasing conditions.