Activity Increases in Downtown Montreal's Office Market - MONTREAL DOWNTOWN SPRING 2017 OFFICE MARKET - Devencore
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Research
MONTREAL DOWNTOWN
SPRING 2017 OFFICE MARKET
Activity Increases in Downtown
Montreal’s Office Market
Research
MONTREAL DOWNTOWN
SPRING 2017 OFFICE MARKET
Market is Tenant-Favoured for Most Space Categories
All signs point to an acceleration of activity in the downtown Montreal office
market. While office space is still plentiful, the gap between availability and Current Conditions – Montreal Downtown Core
vacancy rates is starting to shrink as existing inventory (including sublets) is
absorbed. Over one million square feet of new Class A office space has
• Availability rate in downtown core at 15.4% at end of
come online in downtown Montreal over the past three years, another
million square feet of new space is currently under construction, and there
1Q17; rate could begin to decline later this year
are more new developments in the planning and pre-leasing stages than • Over one million square feet of new office space currently
there have been for decades. Downtown condominium and hotel under construction with more new projects in the planning
development activity continues to increase, and many of the key and pre-leasing stages
infrastructure developments that will change the face of the city and
influence real estate decision makers ̶ including the new Champlain • Tenant-favoured market will prevail for remainder of 2017
Bridge, the renovated Bonaventure Expressway, the Turcot Interchange
and the Réseau électrique métropolitain (REM) ̶ will be completed over the
next few years. Economically, Montreal is continuing to strengthen with
unemployment rates falling and new industries ̶ especially those in the Availability Rates (Class A & B) – Downtown Montreal
tech sectors ̶ setting up shop. Finally, all levels of government seem to be
working in concert to promote the economic development of Montreal.
Availability rates for all space classes in downtown Montreal remain high, 14%
standing at 12.1% at the end of the first quarter of 2017, down from 12.3% a
year earlier. Space absorption was negative in the first quarter, but this is 12%
partially explained by the approximately 80,000 square feet of Class A office 10%
space that was brought to market with the completion of L’Avenue, a 50-
8%
storey, 590,000-square-foot mixed-use development at 1275 Avenue des
Canadiens-de-Montréal. Average gross rents for all space classes have 6%
increased slightly over the past 12 months, from $32.27/sf to $32.79/sf. 4%
1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17
In the Downtown Core, combined Class A and Class B availability rates are
Class A Class B
at 15.4%, relatively unchanged over the past year.
Demand for New Space Remains Strong Average Gross Rents (Class A & B) – Downtown Montreal
Tenant demand for space in the new buildings remains strong. L’Avenue is
$/SF
approximately 75% leased; the Deloitte Tower, a 513,000-square-foot
$45
development completed in 2015, has an occupancy rate over 70%; only
blocks of space in the 20,000-square-foot range remain. At the 240,000- $40
square-foot Aimia Tower, which came onto the market in 2014, only three
smaller blocks of space totalling approximately 34,000 square feet remain $35
vacant.
$30
Of the projects scheduled to be completed in 2017, the 275,000-square-foot
Sommer Building at 416 de Maisonneuve Boulevard West (an extension of $25
an existing property) is fully occupied, and the 471,000-square-foot Maison
Manuvie has just under 100,000 square feet still available. A building $20
1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17
extension at 444 de Maisonneuve Boulevard West will be occupied by
Desjardins and will address its needs for back office space. Îlot Balmoral, a Class A Class B
280,000-square-foot tower that should be completed in 2018, has pre-
leased approximately 124,000 square feet. Market Summary (All office classes) – Downtown Montreal
Activity Varies in Downtown Corporate Sectors Current Prior Year Ago 12 Month
Availability rates continue to vary in the corporate neighbourhoods of Quarter Quarter Quarter Forecast
downtown Montreal. In the largest sector along René-Lévesque Boulevard,
where there is almost 11 million square feet of office inventory, the Availability Rate 12.1% 11.9% 12.3%
combined Class A and Class B availability rate currently stands at 11.6%, Net Absorption (SF) -171,943 218,818 120,482
down from 12% three months ago. The availability rate is highest in the
Average Gross Rent/SF $32.79 $32.64 $32.27
smaller Sherbrooke Street corridor (with 2.8 million square feet of office
inventory), at 22.7% and lowest in the Quartier International (5.4 million Under Construction (SF) 1,026,200 1,102,200 822,200
square feet of inventory) at 6.2%. Along de Maisonneuve Boulevard Deliveries (SF)
76,000 0 0
(4 million square feet of inventory), the vacancy rate is currently 17.6%.
Most of the new construction now underway in downtown Montreal is taking
place in this district. Source: Altus Insite
2
Research
MONTREAL DOWNTOWN
SPRING 2017 OFFICE MARKET
The largest transactions to date in 2017 include Rogers Communications’ Lévesque Boulevard was recently announced and the National Film Board
300,000-square-foot renewal at 1200 McGill College/Place Bonaventure, is relocating to a 280,000-square-foot building in the Quartier des
and two major leases by creative media companies: Studios Framestore’s Spectacles, which should be delivered this year. Finally, a range of
81,000-square-foot renewal and expansion at 5455 de Gaspé in the heart substantial redevelopment projects are in the works, including the
of the Mile End district, and Attraction Média’s 60,000-square-foot renewal Standard Life building at 1245 Sherbrooke St. West, Maison Alcan at
and expansion in the same building. A number of other large 1188 Sherbrooke St. West, and a 260,000-square-foot conversion at 425
organizations are also currently reviewing their options, so there may be Viger Street, which should be getting under way in the coming months.
significant transactions in the coming months.
Looking Forward
Potential New Developments Even though the availability rate in the downtown core remains high,
A number of office projects, totalling almost five million square feet, are in tenants seeking blocks of contiguous space of 100,000 square feet or
the early planning and pre-leasing stages. These include the development more will find the market challenging. Tenants requiring less space have a
of I’Îlot Voyageur, where the Quebec government is currently examining much greater range of options, though the best opportunities may be
its options; a two-tower project of 800,000 square feet at the intersection building specific, as those landlords who have lost tenants to the new
of Robert-Bourassa and St-Jacques Street by Magil Laurentian; a two- towers will be more willing to negotiate advantageous transactions.
phase, 900,000-square-foot development at Westcliff’s Place de la Cité
Internationale in Square Victoria; a 355,000-square-foot development at As the competition to attract and retain young, talented employees grows
the corner of Ste. Catherine Street West and Bleury Street; a 288,000- more intense, tenants renewing leases or seeking new premises are
square-foot development at 500 de Maisonneuve Boulevard West; an increasingly recognizing the strategic advantages inherent in the location
825,000-square-foot tower at 1250 Jeanne-Mance Street; and two towers they choose for office space, including the access they have to metro and
at 750 Peel Street comprising over one million square feet. REM lines. Work environment, workspace efficiency and available
services are also playing an important role for decision makers, who must
Additionally, construction of a new home for CBC/Radio-Canada on René- balance these considerations against the cost of space.
Market Statistics (Class A & B) – Specific Corridors
SF Under SF Absorbed SF Absorbed Average Gross
Market Inventory SF % Available
Construction This Quarter YTD Rent/SF
Downtown Class A Class B
(Based on selected buildings)
McGill College Avenue 3,314,418 0 16,093 16,093 16.35 $44.59 $36.91
René-Lévesque Blvd. 10,996,869 0 -65,984 -65,984 11.63 $44.64 $34.25
Sherbrooke Street 2,825,327 0 9,638 9,638 22.73 $38.87 $31.58
De Maisonneuve Blvd. 3,918,986 1,026,200 -18,567 -18,567 17.55 $38.27 $31.38
Quartier International 5,378,973 0 -24,889 -24,889 6.16 $42.25 $35.36
Westmount Area 996,712 0 29,069 29,069 11.76 $36.09 $29.52
Old Montreal 1,525,311 0 -6,629 -6,629 9.96 $33.44 $27.31
Cité du Multimédia 942,550 0 12,059 12,059 12.34 $36.37 $30.00
Source: NKF Devencore Research
Significant Transactions
Tenant Building Type Size (SF) Transaction Date
Rogers Communications 1200 McGill College / Place Bonaventure Renewal 300,000 Q1 2017
Studios Framestore 5455 De Gaspé Renewal / Expansion 81,493 Q1 2017
Attraction Média Inc. 5455 De Gaspé Renewal / Expansion 60,605 Q1 2017
IBM Canada Limited 1 Place Ville Marie New Lease 39,535 Q1 2017
Canadian National Railway 1010 de la Gauchetière New Lease 34,490 Q1 2017
McGill University 101 Sherbrooke W. Renewal 27,540 Q1 2017
Laurentian Bank of Canada 1360 René-Lévesque W. Expansion 22,154 Q1 2017
Investment Industry Regulatory
525 Viger W. Relocation 20,000 Q1 2017
Organization of Canada (IIROC)
KSH Solutions Inc. 3400 de Maisonneuve W. Renewal 15,918 Q1 2017
Source: NKF Devencore Research
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Research MONTREAL DOWNTOWN SPRING 2017 OFFICE MARKET MONTREAL NKF Devencore Canadian Office Locations Devencore Ltd. Real Estate Agency 800 René-Lévesque Boulevard West Suite 900 Montreal, Quebec H3B 1X9 Canada Pascal Easton Director, Marketing and Brand Development Tel.: 514-392-9389 peaston@devencorenkf.com www.devencorenkf.com About Newmark Knight Frank Devencore As part of Newmark Grubb Knight Frank, one of the world's leading commercial real estate advisory firms, Newmark Knight Frank Devencore is Canada's largest corporate real estate advisor and brokerage, exclusively representing corporate, industrial and retail space users. With offices across the country, Newmark Knight Frank Devencore offers its global clientele comprehensive services that are individually designed to ensure executive real estate decisions are supported by effective strategies and professional execution. To learn more about our capabilities, please visit www.devencorenkf.com. About Newmark Grubb Knight Frank Newmark Grubb Knight Frank (NGKF) is one of the world's leading commercial real estate advisory firms. Together with London-based partner Knight Frank and independently-owned offices, NGKF's 14,100 professionals operate from more than 400 offices in established and emerging property markets on six continents. With roots dating back to 1929, NGKF's strong foundation makes it one of the most trusted names in commercial real estate. NGKF's full-service platform comprises BGC's real estate services segment, offering commercial real estate tenants, landlords, investors and developers a wide range of services including leasing; capital markets services, including investment sales, debt placement, appraisal, and valuation services; commercial mortgage brokerage services; as well as corporate advisory services, consulting, project and development management, and property and corporate facilities management services. For further information, visit www.ngkf.com. NGKF is a part of BGC Partners, Inc., a leading global brokerage company servicing the financial and real estate markets. BGC's common stock trades on the NASDAQ Global Select Market under the ticker symbol (NASDAQ: BGCP). BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is led by Chairman and Chief Executive Officer Howard W. Lutnick. For more information, please visit www.bgcpartners.com. DISCLAIMER All information contained in this publication is derived from sources that are deemed to be reliable. However, NKF Devencore has not verified any such information, and the same constitutes the statements and representations only of the source thereof, and not of NKF Devencore. Any recipient of this publication should independently verify such information and all other information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient's choice with regard to all aspects of that decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF Devencore, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.
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