Montreal's office property market may have turned corner

Report shows vacancy rate up, but slowing

MONTREAL • Office vacancy rates may be on the rise again, but one key data point suggests the worst may be over for Montreal landlords.

Downtown, 11.1 per cent of office space was vacant in the second quarter, up from 10.6 per cent three months earlier, real-estate services firm CBRE Ltd. said in its most recent quarterly report. For greater Montreal, the availability rate rose to 13.6 per cent from 13 per cent.

While 295,000 square feet of greater Montreal space became available in the current quarter, the figure represents less than half of what was recorded in the previous four quarters — a sign that the office market may be about to shake off its pandemic-induced slump.

And as several companies prepare to welcome employees back to the office this fall, building tours and leasing renewal discussions are accelerating, CRBE says.

“Yes, the vacancy rate is still higher than pre-pandemic, but we're seeing more occupiers interested in touring” offices with a view to signing new leases, Ruth Fischer, CBRE's managing director for Quebec, said in a telephone interview. “Also, the conversations that occupiers are having have changed. Last year, in late summer, when things seemed pretty grim, people were wondering whether anybody was ever going to return to the office. The question now is not: `Are you going to return the office?' It's more: `How are you going to return to the office?'”

Although some employers are planning to make teleworking permanent, many are waiting to see the longterm effects of remote working policies before making “conclusive” decisions about their office needs, CBRE says. That's one of the reasons why sublets now represent 17.2 per cent of vacant space in greater Montreal, up from 15.4 per cent three months earlier.

Greater Montreal now ranks as the fourth-tightest office property market in North America, trailing Vancouver, Toronto and Ottawa, CBRE said. Office vacancies in Vancouver this quarter averaged 6.6 per cent, compared with 10 per cent for Toronto and 10.6 per cent for the national capital, CBRE data show.

Market conditions in industrial real estate, meanwhile, are downright torrid, with availability rates in greater Montreal having dropped to 1.4 per cent in the second quarter from 1.9 per cent three months earlier. Industries such as e-commerce, food and beverage and logistics drove demand.

Average net asking lease rates for industrial space climbed to an average of $8.24 per square foot in the latest quarter. Over three years, they have surged 44 per cent, CBRE says.

A record 4.5 million square feet of industrial space — almost two-thirds of which is already leased — is now under construction across the Montreal metropolitan area. Limited land availability may soon push companies to consider building industrial facilities farther and farther from the city centre, Fischer said.

“The industrial market is on fire. It's exceptionally strong,” she said, pointing to markets such as Laval, where availability has now fallen below one per cent. “The concern is that this can stifle activity. What's that going to do from an economic perspective if you can't get space at all?”

MORE OCCUPIERS INTERESTED IN TOURING OFFICES.

ALLEN MCINNIS / POSTMEDIA NEWS Sherbrooke Street West, looking east from near de la Montagne in Montreal, where office vacancy rates reached a pandemic-induced high. Now there are signs more businesses are looking to return to their downtown locations.