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The Canadian economy is once again outperforming many of its peers. While this is an enviable position, the question remains, will Canada be able to navigate the global economic headwinds and sidestep either a noticeable slowdown or recession? Commercial real estate has weathered the recent storm and is well positioned for any softening of the economy. Office markets have largely digested the new inventory that was delivered in the past 24 months and are moving to healthy levels of occupancy. One area that appears somewhat exposed if the global economy were to enter a protracted downturn is the Industrial property class, which in many markets is tied closely to NOVA SCOTIA import and export activity. There are mixed signals on both import and export activity Halifax levels. Exports have recently reported gains, however the slowing U.S. economy points to a pullback from our largest customer. The most recent jobs report from the U.S. has further demonstrated the fragility of that economy and will likely hurt U.S. consumer confidence and hence retail activity. Imports are also in positive territory in the most North recent Atlanti c Oceanreleases, but some caution is warranted as the Canadian Consumer Confidence Index has retreated slightly in July, which may point to a future softening of retail sales and, of greater concern, housing activity. Retail activity is a driver of warehouse and distribution facility demand in many markets, pointing to a pullback in demand for that property type if retail spending is reduced. On a positive note, Canadian businesses appear bullish on future prospects and have started to make capital investments in machinery and equipment, boosting imports in those areas. The outlook appears to call for slow and steady performance in the near term, with a return to moderate growth as external economic variables are resolved.

GMA Office Market Overview Until now, the Montréal economy has seemed immune to the damaging effects of the economic slowdown and recession of 2008. Three years later, is this still the case? We can say with certainty that unpredictability has dominated the last three years. 2011 started off with slightly negative absorption for the downtown office market, and the second quarter of 2011 ended with significant positive absorption of 239,000 square feet in the downtown core and the third quarter of 2011 has had a negligible effect on overall annual absorption. We have seen a decline of 27,629 square feet, mainly due to the Old Montréal space vacated by CGI. Considering that this space is already almost entirely re-rented and should be occupied by year end (specifically, Desjardins will occupy 75,000 square feet, and Abitibi Bowater, 50,000 square feet), 2011 is on track to be considered a normal year for the downtown Montréal office market. If this trend continues, we can expect annual absorption of 400,000 square feet, which has been the annual average over the past decade. Given that the year started with negative absorption in the suburban areas of Montréal (negative absorption of 35,249 square feet in the first quarter), we have actually seen enough improvement



margin of available space is slim. While a few projects have been announced, most developers will wait to sign a major tenant before breaking ground on a new building. At the moment, for a prospective tenant seeking more than 50,000 square feet of contiguous office space, the Montréal market is in the rare position of having only three such spaces available (at 1000 de la Gauchetière, at 800 René-Lévesque West, and in the future Altoria building, where 230,000 square feet of contiguous space is still available).



The downtown market tightened in the first three quarters of 2011. Average vacancy reached 6.9 percent in the Class A, B, and C buildings included in our bi-annual survey. Landlords’ appetites have grown, despite the relative stagnation of the past nine months. As a result, the average rent for a Class A space in the downtown core with a 5-year term and an allowance went from $21.29 per square foot in the second quarter to $21.48 per square foot in the third quarter. The relatively stable vacancy rate is nonetheless approaching the six-percent break-even point after which it becomes profitable to build new towers in the downtown core. Keeping in mind that good building managers will reserve about 5 percent of available space in their building to accommodate potential tenant expansion, the actual

With road infrastructure and construction sites causing massive traffic headaches, it is frequently asked if, given the increasingly significant delays faced by staff commuting to work, companies currently based in the downtown core will choose to move to the suburbs? To date, availability, vacancy, and absorption are all at normal levels, and show that the demand for office space in the downtown core is at least as high as it has been in past years. Furthermore, the average net rent for downtown spaces (regardless of class) has increased by 3 percent since the start of 2011, reaching $14.24 per square foot. It is worth noting that no new towers have been built downtown in the past decade and that announcements of new spaces to be delivered would change the situation. Worries caused by market uncertainty seem to be on the

that today, annual absorption in the suburbs has reached 110,510 square feet, which is the equivalent of one office tower. High absorption in the Greater Montréal Area (249,595 square feet) and a relatively low vacancy rate of 7.8 percent indicate favourable market conditions for landlords. What’s more, companies are hesitant when it comes to making decisions about their real estate.

rise, a fact demonstrated by the number of subletting as much as one third to one half of space. What’s more, the available space to sublet in the downtown core has decreased, from 196,666 square feet in the second quarter to 165,266 in the third quarter. According to certain real estate experts, while economic worry and streamlining are on the rise, the market has remained stable overall. INVESTMENT

There have been few developments with regard to investments in the downtown office market. The message here is the same as in years past: while liquidity is readily available, there is a scarcity of quality product in which to invest. Historically low interest rates, which the Bank of Canada has committed to maintaining, allow for easy and inexpensive financing when interesting purchase opportunities present themselves. At the moment, well placed buyers as well as Real Estate Investment Trusts (REITs) are on the lookout for acquisition opportunities, but activity is sporadic and, in the previous quarter, mainly focused on residential complexes in Montréal. That said, Dundee REIT acquired 700 de la Gauchetière for approximately $278 million, or $274 per square foot. The lesson here is that by buying back the same portfolios for over a decade and by keeping them off the market, without the addition of


Square Feet (thousands)


Vacancy Rate





10% 7.8%




0% 1999

P. 2















Source: Colliers International, October 2011


new spaces the investment market will continue to contract and stagnate. To wit, the growth rates of the REITs real estate portfolios have been at a constant reduction since their inception in 2000, after acquiring a good part of the Montréal real estate inventory. FORECAST

Canada always seems to be dragged into the United States’ recessions and economic crises. Our financial institutions are solid and, overall, Canada is in a very good position thanks to our resource-based economy. As a result, the country actually benefits from worldwide economic uncertainty. The thing to keep in mind here is that Europeans and other foreign investors tend to invest in Canada. Whether we are in a recession by the fourth quarter of 2011 or not, the Montréal office market should not be affected too much either way. While we do see many tenants tightening their belts, the construction of new towers should spark an attitude shift among landlords. Rumours that Rio Tinto Alcan will be the main tenant of a LEED® Platinum-certified tower are going full steam. An announcement has already been made regarding the purchase of the Maison Alcan campus by Guy Laliberté, who plans to convert it to a hotel, while a good number of parties are interested in the 200,000 square feet at 1188 Sherbrooke West. The addition of

office spaces downtown, as well as the delivery of Griffintown’s Altoria building will doubtless give Montréal tenants more leverage for negotiations. Other towers may also be built in the coming years, assuming major tenants commit to pre-leasing large parts of them. Notably, Cadillac Fairview has expressed a desire to build a tower near the Bell Centre, but will not start building until 50 percent of the building is pre-leased. Kevric’s tower project (Altoria) has been launched and already the majority of the residential units have been sold. The Westcliff tower has been announced in the same area. Also, the FTQ REIT has announced that their plans to build three new multi-use projects in the downtown core are on track.


Contrary to most other North American metropolitan areas, and as in the case of Manhattan, the total amount of office space in downtown Montréal (approximately 50 million square feet) is greater than that of the suburbs (approximately 25 million square feet). Saint-Laurent has the lowest vacancy rate of all Montréal suburbs surveyed, after that of Laval (6.8 percent), despite a lethargic and stagnant market. While some transactions have been closed in the borough, there are few signs

of revitalization. That said, the third quarter has been the best quarter of the year to date, with positive absorption of 110,510 square feet. The average weighted rent for Class A and B spaces in Saint-Laurent has gone from $10.90 to $10.62, while the vacancy rate dropped from 9.8 percent to 7.5 percent in the third quarter. While summer was a quiet time for the suburban real estate market, a few transactions were closed. TRENDS

For a major tenant in search of more than 50,000 square feet of contiguous space, as is the downtown story, there are presently very few such spaces available, and those that are available are mainly located in the East and West centres (and only one is in a Class A building—1611 Crémazie). In Saint-Laurent, three contiguous spaces are available and only one in a Class A building. The situation is the same on the South Shore, where 70,692 square feet are available in Complex III at 9935 Catania. Given that the markets of the North and South Shores are different and varied, it is difficult to discern any specific trend that describes the Montréal suburbs as a whole. The construction of new towers in Laval and on the South Shore will make these markets more dynamic, while the markets of the West Island and East End are rather sluggish. Only one new office tower is completed in the West Island. In


Total Sublease Availability Rate

Direct Vacancy Rate

Total Direct Availability Rate

14% 12% 10% 8% 6% 4% 2% 0%


DT East

DT West

Source: Colliers International, October 2011

Old Mtl


West Island

Centre West

Centre East

East End


South Shore


P. 3

MARKET REPORT | FALL 2011 | OFFICE | MONTRÉAL the East End, as the market tightens, the vacancy rate has climbed from 12.2 percent in the first quarter to 14.4 percent in the third quarter. INVESTMENT

Similar to the downtown market, quality investment products are rare in the suburbs. At a time when cap rates are compressed by the markets, interested buyers are keeping an eye out for opportunities. However, landlords and REITs are holding back from putting their properties on the market and

are going so far as to amortize their investments to a zero book value. By continuing to manage the properties, they are assuring a more or less constant cash flow but in the absence of any purchase opportunities, it is impossible for them to profit beyond that. Furthermore, capital gains taxes, the absence of other purchase opportunities and the disruption to cash flow all discourage resale. With regards to actual transactions, Place Vertu has been acquired by a combination of investors. Also, Homburg REIT, purchased 29 shopping centres in Québec and Ontario. Several residential complexes in the Montréal area have also been sold, such as the Domaine Bellerive in Laval and the Rockhill Apartments in Montréal, both acquired for $150 million. The general lack of activity in the Greater Montréal Area is worth noting. FORECAST

In Laval, there are at least three office tower projects planned for the next few years. Notably, Cominar REIT, principal real estate owner in Laval, is expected to undertake the construction of a 100,000 square foot tower at Place Laval in 2012, but is searching for tenants requiring 20,000 square feet of space or more before breaking ground. The projected metro extension of five new stations in Laval will create new areas of development and as such several more projects are expected in the coming years. The road infrastructure situation in downtown Montréal, with the predicted decade of chaos due to the replacement of the Turcot interchange as well as concerns about the state of bridges leading onto the island, may well encourage many businesses to move their offices to the suburbs at the end of their current lease terms. Given the rarity of large, contiguous spaces, the number of construction projects should continue to grow over the coming months and years. For example, there are currently five towers of more than 60,000 square feet in built on speculation in the South Shore, and they are almost all in Brossard, with the exception of the Catania Tower.

512 offices in 61 countries • $1.53 billion USD in annual revenue • 12,509 professionals • 978,6 million square feet under management


Andrew Maravita

Managing Director  Montréal Region  +1 514 764 8180 Information contained herein has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/ or its licensor(s). © 2011. All rights reserved. Colliers International (Québec) Inc.

Montreal Office Market Report Fall 2011  
Montreal Office Market Report Fall 2011  

November 23, 2011 Key market indicators from Montreal's office real estate market including vacancies, rents and absorption.