After another year of rising vacancies, could the worst be over for Montreal offices?

Some 17.8 per cent of Greater Montreal offices stood vacant in the fourth quarter of 2023, CBRE says. That’s the highest level since 1996.

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Office vacancies in Montreal have soared to their highest level in almost three decades, but the situation may finally be starting to stabilize.

Some 17.8 per cent of offices across Greater Montreal stood empty in the fourth quarter, the highest level since the corresponding period in 1996, according to data released Tuesday by the CBRE real-estate services firm. While this marks an increase from 17 per cent in the fourth quarter of 2022, the rate was unchanged from the July-September 2023 period.

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Almost four years after the start of the COVID-19 pandemic, office buildings in Montreal and other major business hubs are still feeling the sting of teleworking’s widespread popularity. One industry expert nevertheless predicts that the worst could be over for building owners.

“My perspective is that we’ve reached the bottom of the current contractions,” Ruth Fischer, CBRE’s managing director for Montreal, said in a telephone interview. “As tenancies come to their expiration date, clients are absolutely going to look at their efficiency, and there’s no question they may still shrink their footprint. But there’s a recognition now that a remote-first workforce is not as efficient, collaborative or motivated as people who work in a hybrid or office-first system.”

Empty offices remain an issue in downtown Montreal. Vacancies in the central business district rose to 18 per cent in the fourth quarter, compared with 16 per cent a year earlier, CBRE data show. In the third quarter of 2023, the rate was 17.4 per cent.

It’s a different story in the suburbs, where the fourth-quarter vacancy rate improved by 70 basis points year-over-year to 17.6 per cent. Montreal was one of eight major Canadian real-estate markets to post a decline in suburban vacancy rates in the fourth quarter. Winnipeg was the top performer, with an improvement of 110 basis points.

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Nationwide, the downtown office vacancy rate hit a record 19.4 per cent in fourth quarter, CBRE says. A year earlier, it stood at 17.7 per cent.

More than 2.5 million square feet of office space, or 0.5 per cent of Canada’s total inventory, was converted to mostly residential use in 2023, CBRE says. Even so, the number of feasible conversions remains limited due to factors such as zoning constraints or financial viability.

Financial institutions and creative services firms are among several large employers that recently cut their real-estate footprint, according to CBRE.

As demand for office real estate ebbs, average transaction sizes have declined, CBRE says. Activity for smaller spaces has increased, however, with tenants targeting options under 5,000 square feet.

Offices available for sublease now represent 15.8 per cent of total vacancies in downtown Montreal, CBRE data show. Class AAA and AA buildings — the most expensive office space — are becoming harder to find for tenants who want to sublet, the firm adds.

“The best-quality buildings are the most sought after,” Fischer said. “Flight to quality is still very much a trend.”

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Office buildings representing 1.56 million square feet — including National Bank of Canada’s new St. Jacques St. W. headquarters — are currently under construction downtown. The figure for all of Greater Montreal is 2.03 million square feet.

Demand for warehouses and other industrial properties, meanwhile, has cooled off from its torrid pace of 2021 and 2022 as economic output slows. Industrial availability in Greater Montreal hit three per cent in the fourth quarter, the highest level on record in 18 quarters, CBRE says.

“We saw a significant slowing of industrial demand toward the back half of the year,” Fischer says. “That has to do with the slowing economy and the fact that many companies have started cutting back on the material they keep in storage. It’s not financially feasible to have lots of excess. So we’re starting to see a balanced market, which will give tenants more flexibility.”

[email protected]

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