The real estate community came together Thursday to bury the hatchet with the city of Montreal and be told the economy is doing well. However, the situation of the office towers goes in the opposite direction. A pessimistic scenario put forth by real estate experts sees the vacancy rate for downtown office towers rising to as much as 25% by 2027.
Decidedly, the office has not stopped suffering from the pandemic, although the workers are calmly returning to the city center.
“There is work to be done to get people back to the city center,” said Marie-France Benoit, director of market intelligence for Canada, at the Avison Young real estate agency. She was speaking to an audience of developers at the Montreal Real Estate Summit held at the Palais des Congrès on Thursday morning.
He partnered with Sylvain Leclair, CEO of Groupe Altus. Together they painted a portrait of the real estate market in Montreal after two years of the pandemic.
In short, the residential rental sector and the industrial sector are doing very well, while shopping malls and offices are taking the hit.
The office availability rate is currently close to 17% in the city center. It was below 10% before the pandemic.
An availability rate includes vacant premises as well as other premises immediately available for rent or sublease for which the owner-manager continues to receive rent. By comparison, a vacancy rate is only interested in vacant premises that are not leased.
An increase in the availability rate is often the prelude to an increase in the availability rate.
Contrary to popular belief, Altus experts have found that the quality of offices, A or B, matters little: both categories, newer and older, suffer from post-COVID-19 symptoms equally.
Given the deterioration in market conditions, downward pressures on the level of rents are intensifying. Effective net rent, what is left in the landlord’s pocket after taxes, operating costs, and niceties to the tenants to convince them to sign the lease, has already begun to decline. It’s down to less than $14 a square foot… and it’s probably not over.
Mr. Leclair outlined two scenarios for the coming years based on the popularity of telecommuting. The first foresees that office occupants in the city center will release up to 20% of the occupied area at the end of their lease. His pessimistic scenario assumes a liberated area of 30%.
Its two scenarios take into account growth in employment equivalent to the occupation of 25,000 m2 offices per year. However, it will continue to be insufficient to stop the upward trend in the availability of offices.
According to the first scenario, the availability rate will increase to 21.4% in 2027. The worst-case scenario takes the availability to 25% of the total office stock in the city center.
In 2027, Banco Nacional will have taken possession of its new 100,000 twotwo and it will have definitively abandoned the scattered offices in the center of the city that it currently occupies.
Mr. Leclair reminded me that these were simulations and that reality might differ.
The share of remote work job openings on the rise
However, recent signs suggest that the reality of working from home will survive the pandemic, regardless of what Elon Musk thinks.
According to an indicator put forth by Marie-France Benoit, who scans job postings on sites like Indeed, 15% of jobs posted in the financial services field are offered via telecommuting. In technology, the phenomenon affects almost 3 out of 10 published positions, before the pandemic only 3% of the positions published in these two sectors were telecommuting.
“Even if the economy is doing well, even if there is job creation, that does not mean that the demand for offices will increase in the same proportions,” explained Mr. Benoit to his audience.
“The hybrid formula [combinant travail au bureau et en télétravail] it is here forever,” added Mr. Leclair.
The good news is that Montreal’s economy has resumed growth. The increase in the number of jobs published in the last two years in the technology sector amounts to 29%. In Toronto, the jump is 62% and downtown isn’t doing much better.
Job growth is also seen in financial services. The number of job openings has increased by 39% in the last two years in Montreal. On the side of the financial capital of the country, the increase is 43%.
Decrease in downtown foot traffic since the start of the pandemic on May 23, 2022
AVISON YOUNG VITALITY INDEX
space for dialogue
At odds since the adoption of the diversity statute (20-20-20), developers and the City of Montreal shook hands at the Montreal Real Estate Summit on Thursday morning.
The Summit had invited Mayor Valérie Plante to address real estate developers on Thursday morning. In addition, Luc Rabouin, responsible for the economic development of the executive committee of the city, shared the podium during a workshop on collaborative partnerships with Laurence Vincent, president of Groupe Prével.
The promised poster from Mme Vincent had made an outstanding start against City at the end of April during a forum organized by the Metropolitan Montreal Chamber of Commerce in which Rabouin participated.
In her speech, the mayor took the trouble to greet the initiative of the promoters who presented last Tuesday a common vision of the development of the Puente-Buenaventura sector, which, however, is significantly different from the proposal by the municipal authorities.
“Densification has its place,” he added. “Height and density, there will be, if we want to build complete living environments,” she continued.
The mayor also recalled the initiatives launched by the City Council to make municipal services more efficient in the real estate sector. The chosen ones spoke of the facilitating cells, a kind of consultation table in charge of delivering recommendations in this regard in the fall. He also highlighted the establishment of a tactical team, including developers, to find solutions for building affordable housing.
“We have to keep talking to each other,” he agreed.
For his part, Luc Rabouin, Mayor of the Municipality of Plateau-Mont-Royal, expressed at the workshop his desire to move forward in the fall with the appointment of project managers whose task is to become the City’s sole guarantors for developers. The mission of the project manager would be to diligently guide the project through the labyrinth of municipal bureaucracy.
Mr. Rabouin thus responds to a request from the promoters that Laurence Vincent expressed publicly last April.
Joining Mr. Rabouin on stage, Lucie Careau, director of the Department of Urban Planning and Mobility of the City of Montreal, mentioned the possibility of opening a fast track for the acceptance of small real estate projects, the so-called spacers, to accelerate the delivery of new homes.
Alternatively, Mr. Rabouin and Mr.me Careau took advantage of the forum to expose the restrictions that the provincial power imposes on cities and that contribute to the administrative delays so denounced by the real estate community.
“We have to work together”
The promoters were not unmoved by this call in good faith for constructive dialogue.
“We’ve reached a point where we have to collaborate,” said Roger Plamondon, president of the Broccolini Real Estate Group, one of the city’s leading developers, and co-chair of the Summit. “There are so many challenges to meet, we all have to work together: the community, the private sector, and the City. Recently, we have had very positive signs with initiatives from the City […] We will not always agree, but we should be able to agree on a common core that allows us to move forward”, he hopes.
The challenges Mr. Plamondon refers to relate to the housing crisis exacerbated by a lack of new housing and deteriorating housing affordability due to rising prices.
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