At least two in five commercial establishments in office buildings have closed temporarily or permanently as a result of the pandemic. (Photo: 123RF)
COMMERCIAL REAL ESTATE. It’s been a long time since we’ve seen so many “spaces for rent” signs in downtown Montreal. At least two out of five commercial establishments in office buildings closed their doors temporarily or permanently after the pandemic, according to Jean-François Grenier, senior director of Grupo Altus, a consultancy and solutions services agency.
It’s not much better in the office space. According to the most recent market statistics presented by CBRE real estate, the availability rate in class A and B towers in the city center is currently approaching 17%. “You have to go back to the early 2000s to see so many empty offices,” notes Sylvain Leclair, senior vice president for Quebec at Groupe Altus.
Many buildings in Montreal, however, were subject to transactions at historic prices, as shown by the 2020 and 2021 rankings of the 10 most important commercial real estate transactions. offers —JLR. Calls to major realtors also suggest the situation is not as dramatic as it sounds.
“The fifteen Category A, AA and AAA buildings in the city center have never performed so well in the last two years,” says François Létourneau, associate vice president at JLL. These premium spaces, he says, continue to find buyers. He cites the New York technology company Behavox which, at the beginning of the pandemic, took over the top two floors of the Manulife tower for a price above $60 per square meter. “Spaces that had been unoccupied for more than six years,” he notes.
The same speech for the real estate consultancy CBRE. “This is not the first time that Montreal has experienced such a high vacancy rate,” advises first vice president David Cervantes. In fact, he continues, these high vacancy rates mainly affect buildings in the B and C classes. “This will encourage these owners to review the signature or even the vocation of their buildings to find tenants”, he estimates.
Falling net rents
“The prices shown per square meter of certain category A towers can really give the impression that rents are still on the rise, recognizes Sylvain Leclair. But when we look closely at rental contracts, we see that the incentives (fees offered, development subsidies, moving costs, etc.) are increasing, which reduces the net rent paid to landlords.
This reduction in net rent for Class A offices downtown is perilously close to the $15-per-square-foot mark. “Before the pandemic, this same net income exceeded 17 dollars per square meter, which was also a record average for the sector”, indicates this specialist in market analysis.
Admittedly, it’s easy to attribute the increased availability of commercial and office spaces to COVID-19. The pandemic forced companies to adopt remote work in emergency mode. “But this movement was already underway before the pandemic,” insists Jean-François Grenier.
He cites a survey conducted by McGill University researchers Shearmur, Tremblay and Lachapelle in October 2020. After interviewing nearly 1,200 employees at the center, they found that several employees of public, financial and cultural organizations were already telecommuting. “Shortly before the pandemic, most of them spent only 65% to 79% of their working time in downtown Montreal”, he summarizes.
Opportunities for bargain hunters
These twists are sure to whet the appetite of bargain hunters, notes Yvan Héroux, senior vice president at NAI Terramont Commercial. “These vacancy rates, combined with incentives and other benefits offered by landlords eager to have tenants, currently allow companies to obtain so-called category A spaces at the price of category B spaces,” he notes. And it’s especially companies willing to sublet space for short periods — three years or less — that can reap substantial savings of up to 40% on the average square foot price, he says.
Needless to say, tenants will have the advantage of the market, concludes Grupo Altus. “The vacancy rate of offices – excluding subletting – could reach 22% in five years, estimates Sylvain Leclair. This should have a downward effect on the request for rentals, both for offices and commercial spaces.” This is an opportunity for companies that traditionally avoid the center due to high rental costs.