The Square Victoria area of Montreal will soon become the destination for best-in-class office space in the city thanks to a flurry of new development, industry experts predicted during the recent Montreal Real Estate Forum.
“Square Vic’s going to be ground zero of all large transactions over the next 12, 24, 36 months,” Christopher Thorne, vice-president, leasing at Allied Properties REIT (AP-UN-T) said during the June 13 event. “There’s going to be some really, really exciting players relocating or coming to the market.”
Square Victoria is home to several upcoming office developments and transformations.
Thorne said new amenities will be announced soon for the Allied-owned World Trade Centre at 747 du Square-Victoria St., which has 532,000 square feet of office space.
Kevric is transforming its 600 de la Gauchetière St. W., with more than 710,000 square feet of office space, and which serves as the current National Bank headquarters.
Broccolini is building the new 40-storey headquarters for National Bank at 800 St-Jacques St., which will add 1.1 million square feet of office space to the market in 2024.
Broccolini is also building 700 St-Jacques, a mixed-use office and residential tower with 330,000 square feet of office space to be located in a nine-storey podium of the 58-storey building.
"A new generation of office space"
Sébastien Hylands, vice-president, development of Kevric, said the 28-storey 600 de la Gauchetière, which Kevric acquired in 2019, is getting a new building envelope, atrium, lobby, street-front patios and new entry on de la Gauchetière and Beaver Hall Hill.
David Salomon-Lima, vice-president business development at Broccolini, said 700 St-Jacques will be certified LEED, Well and Wired, and most of its offices will have patios or balconies.
“It matches today’s client expectations.”
As a result of these buildings, "we’re going to have a new generation of office space that’s probably going to be the nicest we’ve ever seen because of the new tenant expectations,” Marie-France Benoit, director, insight and innovation, Canada at Avison Young, said.
The need for high-quality space
Hylands noted the new working spaces are needed because, compared to cities like Toronto or Vancouver, “we don’t have the same quality of office space downtown.”
The work environments in buildings like the new National Bank headquarters will result in greater productivity and creativity and “change the discourse in Montreal.”
Thorne said it was encouraging to hear Avison Young Quebec president Jean Laurin recently say tenants in Montreal who are renewing their leases are only contracting their office spaces by an average of 10 to 20 per cent.
“Not long ago, it was ‘People are not coming back to the office. We’ll have to drag you back to the office. People are giving back 50 per cent of their space.’
"Ten per cent’s a pretty good number. Ten per cent’s a negotiation,” he said. "(If that’s where we’re at), that’s a really healthy place to be.”
Martine Sirois, senior director of Altus Group, said many 10- or 15-year leases are going to roll over in the next few years and agreed “there’s definitely going to be some reductions of space, but hopefully not dramatic.”
She added the volume of transactions in the Montreal office market has been low during the past year, with higher interest rates not helping the situation.
“Everyone is in a bit of a wait-and-see,” although some deals are in the pipeline, she said.
For rundown, no-longer-functional class-B properties, Sirois mused it might be best to go the Calgary route and transform them into residential buildings. “It would reduce the inventory a bit.”
Tenants still have the advantage
Given current high vacancy rates, the leverage in negotiations remains in tenants’ favour, Salomon-Lima said.
“As long as tenants have the bigger end of the stick,” they’re going to go for everything from flexibility and contraction rights to “the whole shebang.”
Salomon also expressed optimism for the future if landlords provide tenants with work environments that contribute to the attraction or retention of talent.
“What keeps (tenants) up at night is their people and as long as we have landlords that are focused on that, the occupants will win.”
Thorne said Allied rolled out a program this year at “tremendous cost” to build out space across its portfolio.
“What we see is over 50 per cent of mandates on the street right now are people who are ready to move and pull the trigger on built-out spaces,” he said.
For tenants requiring 5,000 to 10,000 square feet, the built-out spaces are “right in the sweet spot.”
He added Q1 was disappointing for Allied, which has about seven million square feet of office space in Montreal, but Q2 has been its most active quarter since before the pandemic.