The office availability rate inched above 12 per cent in downtown Montreal during the fourth quarter of 2020, closing out a year when tenants gave up more than 1.3 million square feet of space through sublets or non-renewals. Devencore’s newly released winter 2021 market overview concludes that those still in place or looking for new accommodations have gained more clout to wring concessions from landlords.
“The subleasing trend will likely continue to increase through 2021 before it tapers off around 2022,” projects Jean Laurin, president and chief executive officer of Devencore Montreal.
While rents remained relatively stable throughout 2020 — with average Class A gross rents still above $40 per square foot and average Class B gross rents just below $30 per square foot at year end — they are expected to dip this year. Devencore analysts report more tenants are opting for shorter lease terms while they assess how their office needs are evolving and/or wait to see what better deals may emerge.
“It is emerging that most employees prefer a hybrid model that splits time between home and office, and tenants are embracing the opportunity to reduce space and move to higher-end locations,” analysts observe. “The Réseau express métropolitain (REM), currently under construction, promises to interconnect the urban centre with even more suburban areas such as Laval and Longueuil, thus potentially facilitating the long-term adoption of the hybrid office model.”
Among downtown Montreal’s office zones, Quartier Internationale enjoys the lowest availability rate, at 7.6 per cent, and even recorded 611 square feet of positive absorption during the fourth quarter of 2020. However, it’s also poised for an influx of more than 1.3 million square feet of new office space or a 23 per cent expansion of the current inventory, which is now under construction.
René-Lévesque Boulevard is the highest-density downtown office zone with nearly 11 million square feet of space. It recorded a 9.8 per cent availability at year-end. About 252,000 square feet of that was returned to the market during 2020, including about 62,000 square feet in the fourth quarter.
The fourth quarter saw a 33 per cent increase in sublet space across the downtown office market, pushing the total above 850,000 square feet. “The majority of these sublet spaces come from companies in technology, media, entertainment and advertising,” Devencore analysts report.
Still, there is optimism for a turnaround. “We feel the vaccine will gradually put a lid on COVID and kick-start the economy,” Laurin asserts.