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 continued to increase over the last half of 2014, and are now at 8.6 per cent, up from 8 per cent at the beginning of 2014. Availability rates — which take into account the office space that may currently be occupied but is available for lease or sublet — have increased to 16 per cent.
“There are a number of reasons for the high availability rate,” said Jean Laurin, president and CEO of Newmark Knight Frank Devencore. “First, the new office developments coming onto the market have boosted the total available inventory. Second, the ongoing redevelopment of industrial properties has attracted a certain category of tenant — often the creative class, or those companies seeking a more informal workplace or simply cheaper rents. And third, when relocating to new office spaces, tenants are reviewing their occupancy standards. Using space more efficiently can translate directly into reducing one’s space needs, and hence lowering occupancy costs over both the short and long term.”
Laurin also noted that, with availability rates at a decade-long high, tenant opportunities are abundant. “Tenant leverage is also greater, and many landlords are willing to negotiate very competitive leasing transactions,” Laurin said. “However, tenants should recognize that the availability of office space is building specific, so the market must be researched. A careful needs analysis should also be undertaken, as the range of options includes new, state-of-the-art tower space, older space, and redeveloped space. For larger tenants, such an analysis should ideally take place three to five years before lease expiry; even smaller tenants should examine their needs at least three years in advance.”
NKF Devencore’s report also highlights the unprecedented construction activity that is currently taking place. More office developments and redevelopments are underway than at any time over the past 15 years, a downtown condo boom is in full flight, and much-needed infrastructure work has been initiated. These are all positive signs for the Montreal economy, and speak to both investor and developer confidence.
Most of Canada’s largest cities have seen increases in office vacancy rates. In Calgary, where the energy sector drives the local economy, the combined Class “A” and Class “B” vacancy rate in office buildings jumped from 4.4 per cent to 6.2 per cent over the last six months of 2014. There were more moderate increases in vacancy rates in Toronto, Edmonton, Winnipeg and Halifax, while rates were essentially unchanged in Ottawa and Vancouver over the same period. One of the factors affecting the rise in the country’s overall vacancy rates is the new inventory that continues to be built. Over 4 million feet of office space was added to the market inventory in 2014 alone.