Despite what some tenants are hearing from some news outlets, Montreal’s office market is far from flatlining.
That’s what Meggie Bergevin, senior associate at Cushman & Wakefield, told attendees at a session on the city’s office market during the Montreal Real Estate Forum, held June 6 at the city’s convention centre.
Bergevin said “there’s a message out there that we need to correct” about the office market’s alleged mortality. “Well, the office market is not dead,” she said. “The deals are taking longer, for sure, to get done but there are deals getting done.”
The challenges, she said, lie in managing clients’ expectations – “sometimes they think we’re going to get negative NER (net effective rent) in a Triple-A tower, which is not going to happen” – and in adapting workplaces to the post-pandemic environment.
There is a likely similarity between the office market and the major transformation that has been seen with retail over the past five years, said James Palladino, managing director at RBC Capital Markets.
“Some said shopping centres would die, but five years later the best shopping centres are in better shape than ever,” he said. “It’s a bit what we’d like to see with office towers.”
Some key sectors continue to expand space
In the good news front, Bergevin said space demands are growing in the legal sector as “it’s difficult for them to reduce the number of closed offices.” When privacy is required, hotelling and open concepts don’t apply.
Last year, Cushman & Wakefield leased 250,000 square feet to law firms and none reduced their footage. Osler, for example, expanded by 20 per cent and is redoing its offices at 1000 De La Gauchetière W., she said.
The office availability rate has declined slightly since Q3 of 2023 and stood at about 18.5 per cent in Greater Montreal in Q1, said Patrick Laurin, principal, managing director and leader of occupier services, Quebec at Avison Young.
Availability in the prestige or class-AAA sector, “which is doing extremely well,” is at nine per cent in downtown Montreal, while it’s 19.5 per cent for class-A, 27.2 per cent for class-B and 18.7 per cent for class-C.
Laurin said owners of class-C buildings will have to make serious decisions as to what they want to do with their assets in the medium to long term.
An Avison Young analysis found 19 class-C buildings in Montreal could potentially be redeveloped or converted into residential housing in the years to come, Laurin said, which would reduce the availability of office space substantially.
Amenities a key to retention, new leases
Bergevin said she’s seeing some tenants build more meeting spaces and lounges, gyms, yoga studios, showers and even gender-neutral washrooms in buildings that don’t already offer these services.
“Landlords, you guys need to do your parts. You need to upgrade your buildings to the new environment that we’re in,” she said, citing Ivanhoé Cambridge at Place Ville Marie, and Redbourne and Petra across their portfolios among the landlords that have done so.
“We’re forcing landlords to re-amenitize their buildings because it’s such a good tenants’ market out there that either they’re going to move to a better building, or we’re just going to put in the deal that they need to add some amenities.”
Hugo Daigneault, senior leasing manager at Allied Properties REIT, said Allied is trying to improve employee experiences as much as possible by converting lobbies into multi-use spaces with amenities like cafés, transforming outdoor areas into welcoming spaces by creating exterior courtyards, patios and rooftops, providing secure bike parking and showers and installing shared conference centres.
In buildings like La Cite du Multimedia, there is a free gym for employees, and 1001 Robert Bourassa has a small bar where employees can get drinks after work.
The goal is that “you don’t just come to work to do Teams calls,” he said.
Canderel offers hospitality program
Mélanie Allan, associate, leasing at Canderel, said she’s “super excited” about the leasing possibilities provided by the company’s new Okkto workplace hospitality program for tenants. The program helps create employee experiences that employers and tenants cannot replicate on their own, she said: “It’s Bring Employees Back 101.”
Within the Industrial Alliance portfolio, for example, “you might take a yoga class at 2000 McGill (College) and then go to a 5-à-7 (happy hour) at 1981 McGill across the street.”
With the program, “we’re not just selling square footage anymore; we’re really selling an experience and selling that experience is what gets people back into the office.”
Allan said in five years the winners in Montreal’s office market will be those that have the best amenities, while the losers, Bergevin said, will be owners of class-C properties.
Laurin said there are enormous changes coming to downtown, not the least of which will be a dramatic improvement in accessibility. “We’re going in the right direction.”