office market report q3 2016 / greater montreal 2016-11-17 · commercial real estate agency...
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Q3 2016 OFFICE MARKET REPORT | GREATER MONTREALPAGE 1
Q3 OFFICE MARKET REPORTQ3 2016 / GREATER MONTREAL
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREAL PAGE 2
Although the American economy is expected to grow by 1.5% by year-end 2016, the Canadian economy is estimated to grow by only 1.1%. According to TD Economics, the weak economic growth is mostly due to the decline in exports in the first two quarters of the year and the Alberta Wildfires. In a press release issued in July, the Bank of Canada declared that the interest rate will remain at 0.5% until early 2019 and reduced the economic growth forecast from 1.3 to 1.1% for 2016. This 0.2% drop is primarily caused by the weaker-than-expected economic performance as Canadian exporters are still struggling to gain market share in the U.S.
In Quebec, the real GDP should reach 1.6 in 2017. The province is expected to gain from the improved U.S. market, the healthy growth in Ontario and the low currency. The unemployment rate in the Province of Quebec decreased by 10.4% over the past year, reaching 6.9% in September 2016 from 7.7% in September 2015. This slight cutback should translate into increased consumer spending, boosting the province’s economic growth.
Montreal has seen significant construction activity in recent years, and the number of projects is not expected to decrease in the near future. In the Greater Montreal Area (GMA), approximately 1.7 million square feet (msf ) are currently under construction and 8.7 msf are subject to preleasing. The new and revitalized office buildings added to the city inventory have greatly impacted the vacancy rates. The total availability rate in Montreal has constantly increased since 2013, peaking this quarter at 14.9% for all office classes; making it the third highest in Canada. The sector that suffers the most is the Downtown Core, with an availability rate of 17.8%.
Availability reaches 20.2% on the McGill College Corridor, with no sign of improvement in the immediate future. On the other hand, the Midtown areas are showing signs of improvement, and all sectors have shown decreasing availability rates and positive absorptions since 2015.
Q3 OFFICE MARKET REPORTQ3 2016 / GREATER MONTREAL
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREALPAGE 3
TRANSACTIONS PER TYPE
242,000 SFIn 2018, the Laurentian Bank will be leaving 1981 McGill College Avenue, 555 Chabanel Street and 1100 René-Lévesque Boulevard West, centralizing its operations at 1360 René-Lévesque Boulevard West.
The financial organization will occupy 242,000 sf on nine floors of the building.
2014 56%
44%
2016 65%
27%8%
New Tenant
Expansion
Renewal
This quarter, the GMA posted 426,537 square feet (sf ) of positive absorption. In the surrounding areas, West Island and Laval show the highest availability rates, reaching 22.8%, and 18.6% respectively, while the South Shore availability rate reaches 16.6%.
The real estate office market in the GMA is very beneficial to tenants, as the demand is limited and the market is flooded with inventory. As today’s economy is driven by the technology sector, for which traditional office space is no longer attractive, companies prefer to locate in Midtown areas such as Griffintown or Mile End. The main reasons include lower occupancy costs along with the more unique, authentic premises that these submarkets offer.
There is a big discrepancy in rental rates between the Downtown and Midtown sectors, as average rental rates in the central areas are close to $32.37 per square foot (psf ) while the Midtown rates hover around $22.72 psf.
With a growing inventory, Montreal offers a wide variety of space to potential tenants, and since there is such an abundant product available on the market, landlords are very flexible and accommodating in order to stay competitive.
For instance, in 2014, 44% of the lease transactions were renewals and 56% were new leases. By comparison, in 2016, only 27% of the transactions were renewals and 65% were new leases.
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREAL PAGE 4
Overall rental rates have slightly decreased in the GMA, as net rent dropped from $14.09 psf in the third quarter of 2015 to $13.86 psf in the third quarter of 2016. The additional rent decreased from $13.70 psf in the third quarter of 2015 to $13.55 psf in the third quarter of 2016.
The GMA’s most notable leasing transactions over the past months include the announcement of the relocation of the Yellow Pages Group technical support team from 16 Place du Commerce to Le Nordelec. Avison Young represented the interests of Allied Properties REIT in the lease negotiations that led to the relocation of the team from Nuns’ Island to their new, 150,000-sf premises in Pointe-Saint-Charles near Griffintown.
Upcoming in 2018 is another significant transition: the Montreal Stock Exchange will be relocating their premises to the Deloitte Tower. The Stock Exchange will be leaving 800 Square Victoria (also known as Tour de la Bourse) where it has been since 1965, for two floors in the Deloitte Tower, which represent approximately 44,000 sf.
Also in 2018, the Laurentian Bank will be consolidating their premises currently located at 1981 McGill College Avenue, 555 Chabanel Street and 1100 René-Lévesque Boulevard West, centralizing its operations at 1360 René-Lévesque Boulevard West. The financial organization will occupy 242,000 sf on nine floors of the building.
Electronic Arts (EA) will be leaving Place Ville Marie, where it has been located since 2004, for Maison Alcan. The lease will start in 2017 and will account for 80,000 sf of space. Also, WeWork will be opening its second location in a 45,000-sf space in mixed-use project L/Avenue, which is expected to be completed next year.
From an investment perspective, Monit Investment acquired the remaining 50% of the Scotia Tower from Scotia Realty Limited for $79 million. The privately-owned investment company has owned 50% of the structure since it opened in 1990. The main tenant will remain Scotiabank.
Q3 OFFICE MARKET REPORTQ3 2016 / GREATER MONTREAL
Downtown Midtown West IslandLavalEast End South Shore$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
OCCUPANCY COSTS
OFFICE SPACEGREATER MONTREAL AREA
BY SUBMARKET
$32.36
$16.70
$12.35
$11.68
$10.70 $9.96 $13.35
$15.66 $13.58 $15.90 $12.03 $12.49 $12.71
$25.93$27.58
$22.73 $22.45
$26.06
Sou
rce
: Alt
us
InSi
te, A
ltu
s G
rou
p L
imit
ed
Net Rent Additional Rent
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREALPAGE 5
Address 1002 Sherbrooke Street West, Montréal
Buyer Monit Investment
Seller Scotia Realty Limited
Price $78,999,500
Total Area 331,456 square feet
Price per sf $238.34
Address 7777 Décarie Boulevard, Montréal
Buyer 9342-2517 Québec Inc.
Seller 3105580 Canada Inc.
Price $9,700,000
Total Area 107,000 square feet
Price per sf $90.65
Address 5757 Cavendish Boulevard, Côte-Saint-Luc
Buyer Les Immeubles 5755-5757 Cavendish Inc.
Seller La Compagnie d’Assurance-Vie Manufacturers (Manulife)
Price $7,500,000
Total Area 85,806 square feet
Price per sf $87.41
Address 422-424 Saint-François-Xavier Street, Montréal
Buyer Serruya Bitton Realties Inc.
Seller La Compagnie d’Assurance-Vie Manufacturers (Manulife)
Price $6,100,000
Total Area 37,273 square feet
Price per sf $163.65
Address 6700 to 6780 De La Côte-de-Liesse Road, Ville Saint-Laurent
Buyer 120746 Gestion Multi-Services 2003 inc.
Seller PCDL (St-Laurent Portfolio) LP
Price $14,007,000
Total Area 102,889 square feet
Price per sf $136.14
SIGNIFICANT SALES, OFFICE GREATER MONTREAL AREA
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREAL PAGE 6
SIGNIFICANT LEASING TRANSACTIONS, OFFICEGREATER MONTREAL AREA
Address 1360 René-Lévesque Boulevard West, Montréal
Tenant The Laurentian Bank
Total Area 242,000 square feet
Type New lease
Address 1751 Richardson Street, Pointe-Saint-Charles, Montréal (Le Nordelec)
Tenant Yellow Pages Group (YPG)
Total Area 150,000 square feet
Type Expansion and renewal
Address 16711 TransCanada Highway, Kirkland
Tenant Traffic Tech
Total Area 91,549 square feet
Type New lease
Address 1190 Des-Canadiens-De-Montréal Avenue, Montréal (Deloitte Tower)
Tenant Montreal Stock Exchange
Total Area 43,721 square feet
Type New lease
Address 2200 Stanley Street, Montréal (Maison Alcan)
Tenant Electronic Arts
Total Area 80,000 square feet
Type New lease
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREALPAGE 7
GREATER MONTREAL AREAABSORPTION
GREATER MONTREAL AREAMARKET TRENDS BY SUBMARKET
MarketsOffice
Inventory Vacancy Rates
(Q3 2015)Vacancy Rates
(Q3 2016)Trend
Rental Rates (Q3 2015)
Rental Rates (Q3 2016)
Trend
Clas
s A
Downtown Montreal 19,897,870 13.3% 12.3% $40.74 $40.51
East End 1,105,774 16.7% 19.2% $28.65 $28.88
Laval 1,913,936 13.6% 16.7% $27.59 $28.38
Midtown 1,356,802 8.2% 10.0% $27.87 $29.14
South Shore 2,098,894 17.4% 18.7% $28.11 $27.63
West Island 3,366,374 24.1% 24.0% $28.17 $28.77
Clas
s B
Downtown Montreal 16,974,000 12.6% 13.4% $30.01 $30.51
East End 464,379 11.5% 10.6% $24.45 $20.06
Laval 1,388,719 21.8% 22.6% $23.26 $22.76
Midtown 8,075,333 15.0% 17.6% $23.34 $23.15
South Shore 1,188,269 16.1% 14.3% $19.61 $19.87
West Island 2,404,494 17.8% 19.5% $25.19 $24.90
All
Clas
ses
Downtown Montreal 39,398,361 12.8% 12.4% $31.67 $32.37
East End 1,610,153 13.6% 14.5% $27.25 $25.94
Laval 3,326,655 16.4% 18.6% $27.05 $27.58
Midtown 16,155,699 15.2% 16.8% $23.28 $22.72
South Shore 3,550,823 16.6% 16.3% $23.37 $22.15
West Island 6,033,221 21.2% 22.2% $26.03 $26.07
Source : Altus InSite, Altus Group Limited
Q3 OFFICE MARKET REPORTQ3 2016 / GREATER MONTREAL
Source : Altus InSite, Altus Group Limited
2004 20102005 20112006 20122007 20132008 20142009 2015 2016-1,600
200
-1,400
400
-1,200
600
-1,000
800
-800
1,000
-600
1,200
-400
1,400
-200
1,600
0
1,800
2,000
TOTA
L O
FF
ICE
AB
SO
RP
TIO
N
(00
0 S
F)
Q3 2016 OFFICE MARKET REPORT | GREATER MONTREAL PAGE 8
avisonyoung.com
YO U H AV E Q U E S T I O N S O R CO M M E N T S ? CO N TA C T U S TO DAY :
Avison Young Québec Inc. Denis Perreault, MBA, Adm.ACommercial Real Estate Agency Principal, Managing Director 1200 McGill College Avenue Chartered Real Estate BrokerSuite 2000 514.905.0604Montréal, Québec H3B 4G7 denis.perreault@avisonyoung.com
Q3 OFFICE MARKET REPORTQ3 2016 / GREATER MONTREAL
VACANCY & TOTALINVENTORY
OFFICE SPACE BY SUBMARKETGREATER MONTREAL
AREA
TOTAL AVAILABILITY
OFFICE SPACEGREATER MONTREAL
AREA
14.0%
16.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
TOTA
L A
VA
ILA
BIL
ITY
(0
00
SF
)
Source : Altus InSite, Altus Group Limited
0,000
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Downtown East End Laval Midtown South Shore West Island
TOTA
L O
FF
ICE
IN
VE
NTO
RY
(0
00
SF
)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Source : Altus InSite, Altus Group Limited
12.4%
14.5%
18.6%
16.8% 16.3%
22.2%
Inventory Vacancy Rate
2004 20102005 20112006 20122007 20132008 20142009 2015 2016
11.2% 11.3%10.7%
9.8%
8.7%
10.8%10.3%
9.8% 9.8%
12.3%
14.1% 14.4%14.9%
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