Tower will up ante for other landlords

Firms looking for open workspace, green offices seek out new construction

Cadillac Fairview Corp. Ltd.’ s decision this week to build downtown Montreal’s first privately financed office tower since the early 1990s will pressure landlords to renovate the city’s top buildings, or risk losing key tenants, industry observers said.

Deloitte LLP said Friday it will lease at least 160,000 square feet as anchor tenant in Cadillac Fairview’s 26-storey, 514,000-square-foot office tower, to be built between Windsor Station and the Bell Centre. The conversion of the nearly half-hectare site is part of a multi-phase, $1-billion project announced by Cadillac Fairview to create a mixed residential, office and entertainment hub around the Bell Centre, and on land assembled by the company south of St. Antoine St.

After three decades at Montreal’s iconic Place Ville Marie, Deloitte wanted a modern setting for its 1,200 employees with more of the open space required for teamwork, said Alain Côté, managing partner, Quebec region, for the global professional services firm. Deloitte had already signed on in June as anchor tenant for the 44-storey Bay Adelaide Centre East in Toronto, to be built by Brookfield Properties, where it is to lease 420,000 square feet.

But finding a suitable space was a challenge for Deloitte in Montreal, which has a six per cent downtown office vacancy rate and where most of the top buildings were constructed before concepts like open spaces and Leadership in Energy and Environmental Design certification had evolved into routine demands by tenants.

“There is starting to be a mindset among first-class tenants like Deloitte that if they want to occupy the best of available spaces moving forward in the future, these can only be offered in new buildings,” said Sal Iacono, senior vice-president, development and portfolio management, Eastern Canada for Cadillac Fairview.

Despite years of announcements by developers eager to build new towers, limited growth, a lack of large firms in Montreal, and comparatively inexpensive rents at Montreal’s top buildings gave tenants little incentive to lease spaces in new construction.

“The important issue here is that our Class AAA buildings are still 20 years old,” said Lloyd Cooper, a broker

“This will force landlords to retrofit their buildings.”

LLOYD COOPER

at the real estate services firm Cushman & Wakefield, which represented Deloitte. “So unlike Toronto and Calgary there were no options for tenants wanting to go to new pure LEED office buildings.”

When completed in June 2015, the Deloitte Tower would be Montreal’s first downtown tower built LEED platinum, the highest certification possible, Cadillac Fairview said. And the Altoria, a mixed-use building now under construction in Square Victoria, will have about 250,000 square feet of LEED office space, combined with condos.

The building of Altoria, the Deloitte Tower and rumours of financial firm Caisses Desjardins signing on as anchor tenant for a new tower to be developed near the former Spectrum Theatre, would generate competition for landlords at the city’s top downtown buildings.

“This will force landlords to retrofit their buildings,” Cooper said, who wouldn’t comment on rumours about Desjardins.

Deloitte will be giving up about 180,000 square feet of space at Place Ville Marie in 2015. Meanwhile, Place Ville Marie tenants Royal Bank will be letting go of just over 100,000 square feet of space in spring 2013, and Via Rail Canada has been shopping around for 75,000 square feet of space.

“The long-term value of Place Ville Marie is there,” said Brett Miller, president of Jones Lang LaSalle Canada.

“However, in the short term, they will have to adjust to the vacancy through either big investments to modernize to attract tenants or suffer low rental rates.”

Ivanhoe Cambridge Group, the real estate arm of Quebec pension fund manager Caisse de dépôt et placement du Québec and owner of Place Ville Marie, said it would be fully renovating the spaces vacated by the Royal Bank and Deloitte.

“We cannot do these things when the tenants are occupying the building,” said Jean Laramée, senior vicepresident, Eastern North American Portfolio, for Ivanhoe Cambridge.

“For us, we still have a very good asset being Place Ville Marie. As you know, the building has aged pretty well.”