Downtown Montreal’s office availability rate could hit as high as 33.7 per cent by 2028 if a worst-case scenario comes to fruition, according to updated data from Altus Group.

That’s what attendees heard during a discussion on the rental market landscape during the Montreal Real Estate Strategy and Leasing conference Sept. 27 at the city’s Palais des congrès convention centre.

The worst-case scenario would only occur if tenants reduce their office holdings by 40 per cent when their leases expire. If the 40 per cent scenario becomes reality, “downtown will be vacant,” Jean-François Grenier, senior director at Altus Group, said.

However, “we think the reality will be situated between 25.5 and 29.6 per cent and not 33.7 per cent” in 2028, he said.

The 25.5 and 29.6 per cent forecasts assume tenants reduce 20 or 30 per cent of their current class-A or class-B office holdings, respectively, at lease renewal. All three scenarios also assume positive absorption of 150,000 square feet annually and no new construction. 

Altus says the current class-A and -B availability rate in downtown Montreal is 18.8 per cent.

Montreal's return-to-office picking up

As the return of workers to downtown office buildings is accelerating, the portrait could be rosier than those in the three scenarios for 2028, Sébastien Samuel, director at Altus Group, said.

In addition, if some office space is transformed into residential it would lower the inventory and availability rate, Grenier said.

Last year, Altus forecast the availability rate in downtown Montreal could climb to 25 per cent by 2027 if tenants give up 30 per cent of their office spaces.

Altus also found 68 per cent of downtown workers work from home part-time and 13 per cent work from home full-time, while 19 per cent do not work from home at all.

However, the survey of 1,000 respondents was conducted in March and the situation has changed over the past six months.

For example, pedestrian traffic at the intersection of Ste. Catherine and Peel streets in Q1 was up 126 per cent compared with the same period in 2021, Altus found.

In addition, reconstruction work that will rejuvenate parts of Ste. Catherine St. “should generate a major increase in traffic,” Grenier said.

The increased pedestrian traffic should boost retailers downtown, where the retail vacancy rate in Q1 was 12 per cent for downtown malls, 16 per cent for Ste. Catherine St. – the downtown's main shopping district – and 38 per cent in ground-floor office buildings. 

A 16 per cent vacancy rate is high for Ste. Catherine, given the historic rate for the street is six or seven per cent, Grenier said.

Workers vital to city's ecosystem

Downtown workers are an important component of Montreal’s ecosystem, Grenier said, and their importance becomes evident with the finding that 51 per cent of people in the Montreal area (excluding those who work downtown) never go downtown, while 21 per cent go there less than once a month.

Only two per cent of Montrealers said they go downtown frequently.

Grenier noted there is no other place in the Montreal area with the diversity of downtown. “The fact workers aren’t there has a major impact. Unfortunately, I don’t see a return to the pre-Covid situation” in which employees were in the office five days a week. 

Martine Sirois, senior director at Altus Group, noted office transactions of 10,000 square feet or more in Greater Montreal have declined significantly during the first nine months of 2023 to 41, compared with 70 at the same time last year and 99 for all of 2022. 

Average net rents for multi-tenant industrial built within the last five years reached $15.80 per square foot in Q1 in Montreal, a 43 per cent increase from 2022, Julie-Maude Ayotte, senior consultant, Altus Group, said.

By comparison, similar rents were $18.50 in Toronto and $23.07 in Vancouver.

However, Ayotte said a bit of a slowdown in rent growth is starting to be seen in Montreal.

Altus found industrial buildings in Saint-Laurent have the highest average rents at $16.67 per square foot, compared with their counterparts in the West Island, Laval, South Shore, Beauharnois-Vaudreuil and Mirabel.

For industrial buildings with ceiling heights of 24 feet or more, average rents range from $12 to $16.15 in the Montreal area.

Ayotte said for the 2023-'25 period, property valuations in the City of Montreal have risen sharply (61.3 per cent) for industrial buildings, compared with an increase of only 6.5 per cent for office buildings and a decline of one per cent for shopping centres during that period.

The increase in property evaluations could have a major impact on net industrial rents, she said.