office market report q3 2016 / greater montreal 2016-11-17 · commercial real estate agency...

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.



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.


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.


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


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


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


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



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



SIGNIFICANT SALES, OFFICE GREATER MONTREAL AREA


SIGNIFICANT LEASING TRANSACTIONS, OFFICEGREATER MONTREAL AREA

Address 1360 René-Lévesque Boulevard West, Montréal

Tenant The Laurentian Bank


Type New lease

Address 1751 Richardson Street, Pointe-Saint-Charles, Montréal (Le Nordelec)

Tenant Yellow Pages Group (YPG)


Type Expansion and renewal

Address 16711 TransCanada Highway, Kirkland

Tenant Traffic Tech


Type New lease

Address 1190 Des-Canadiens-De-Montréal Avenue, Montréal (Deloitte Tower)

Tenant Montreal Stock Exchange


Type New lease

Address 2200 Stanley Street, Montréal (Maison Alcan)

Tenant Electronic Arts


Type New lease


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


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


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



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)


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 [email protected]


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

)


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%


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%

office market report q3 2016 / greater montreal 2016-11-17 · commercial real estate agency...

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