OFFICE MARKET REPORT Q1 2017 / GREATER MONTREAL 2017-05-10 · Q1 2017 OFFICE MARKET REPORT GREATER...

Q1 2017 OFFICE MARKET REPORT | GREATER MONTREALPAGE 1

OFFICE MARKET REPORTQ1 2017 / GREATER MONTREAL

Image Credit: Avison Young Québec Inc.

Q1 2017 OFFICE MARKET REPORT | GREATER MONTREAL PAGE 2

With a new U.S. president and the U.K. leaving the European Union, 2016 was without a doubt a game changer for the power dynamics of the world. Even though such events were expected to have substantial consequences on the global economy in 2017, markets are performing unexpectedly well so far. The unemployment rate in the Greater Montreal Area (GMA) decreased significantly year-over-year, reaching 6.7% in February 2017 from 8.7%. Nearly 85,200 jobs have been created in the past year, proof that the city’s economic conditions are slowly recovering.

Downtown Montreal remains a tenant’s market, with availability rates peaking over the last two years and reaching 12.1% at the end of the first quarter. Nonetheless, Class-A buildings in the Downtown Core are seeing better days, with availability rates dropping from 16% at the end of 2016 to 13% in the first quarter of 2017, meaning that 340,385 square feet (sf ) of Class-A office space have been absorbed since last year.

The GMA started 2016 with a 14.8% availability rate, which slightly dropped to 14.6% at the end of the fourth quarter. With

nearly 1 million square feet (msf ) under construction Downtown, the vacancy rate will undoubtedly increase upon delivery of the new inventory by year-end. In spite of the GMA’s high availability rate at the beginning of 2017, landlords remain positive, with high expectations for the next months as the global economy is getting stronger and employment growth is steady. Average rental rates in the GMA have slightly decreased since the beginning of 2016, the average net rent dropping from $14.05 per square foot (psf ) to $13.87 psf and the additional rent from $13.79 to $13.66 psf.

With more than 2.3 msf of office space, the Midtown markets remain very active, mainly due to their proximity to the Downtown Core and their more affordable rental rates. Midtown holds the second largest office inventory in Montreal after the Downtown Area (5.2 msf ). This inventory is constantly increasing as developers are converting historically outdated buildings into plug-n-play, tech-friendly, loft-style offices. Even though this conversion trend started a few years ago, it is not expected to slow down in the years to come.


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As a growing technology hub, Midtown is home to several tech companies, such as Ubisoft, who expanded their offices at 5445 De Gaspé by 86,715 sf this quarter. Tech giants Google and Microsoft, together with the Canadian Government, announced significant investments in artificial intelligence research and development centres in Montreal for the upcoming years, which leads to believe that the Midtown area could see new, world-class tenants in the near future.

Average rental rates for the Midtown areas remained stable over the past months, hovering around $12, with additional rates of about $10.50. Midtown’s average gross rental rates remain nearly $10 lower than Downtown’s, where the

average asking rate reaches $15.50 and the average additional rent hovers around $17.

One of the most notable leasing transactions announced in the first quarter was Ernst & Young’s relocation to Maison Manuvie at 900 De Maisonneuve Boulevard West from 800 René-Lévesque Boulevard West. The accounting firm will greatly benefit from the new building’s layout, reducing its footprint from more than 100,000 sf to 86,000 sf, while still accommodating 750 employees.

Downtown Core

Downtown East

Downtown South

Downtown West

Old Montreal

DOWNTOWN AVAILABILITY

9.2% 14.9%

5.6%

10.0%

17.3%

DOWNTOWN INVENTORY

41%

23%

17%

11%8%

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

$33.05

$17.31

$12.05

$12.18

$10.47

$11.37

$13.22

$15.74 $12.93 $15.20 $12.15 $14.10 $12.67

$24.98

$27.38

$22.62

$25.47 $25.89

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Net Rent Additional Rent



SOLARUNIQUARTIER

Industrial Alliance Financial Group recently announced that 120 employees will occupy one floor of Tour Place de la Gare in early 2019.

With strong vacancies all around the city, there is no doubt that tenants have the best of the bargain. For that reason, landlords must remain competitive and willing to invest in tenant improvements to adapt their space to users’ requirements. There is an increasing demand for built-to-suit office space that reflects companies’ core values. By modernizing traditional office space, companies hope to retain their employees and increase their client base.

In September of 2016, Devimco Immobilier started the construction of Solar Uniquartier in Brossard, a transit-oriented, mixed-used development valued at over one billion dollars. The project will be developed around the light rail network (REM) and will offer 1 msf

of commercial and office space. Industrial Alliance Financial Group recently announced that 120 employees will occupy one floor of Tour Place de la Gare in early 2019.

Another significant construction project is Humaniti: a mixed-use complex of 39 floors situated across from Place Jean-Paul-Riopelle. Once completed, the building will include a 200-room hotel, 335 rental units, 140 condos, 20,000 sf of retail space and 70,000 sf of office space for sale or for lease. The project, valued at more than $200 million, is a partnership between Fonds immobilier de solidarité FTQ and Cogir Immobilier.

In late summer of 2017, Broccolini Construction will start the construction of the new Maison de Radio-Canada. The redevelopment project and the sale transaction of the existing facility (including the western part of the lot) were both approved by the Treasury Board of Canada in April of 2017. The new, 410,000-sf complex is scheduled to be delivered by early 2020, at which point the public broadcaster will be the sole tenant of the facility under a 30-year lease. As part of the extensive revitalization project for the existing building, new owner Groupe Mach’s current plan calls for the Radio-Canada tower to be preserved and completely renovated. Avison Young proudly represented CBC/Radio-Canada both in the sale and the relocation of their Montreal facilities.

Image Credit : Devimco Immobilier - Solar Uniquartier


From an investment perspective, 2016 ended with one of the biggest transactions of the year: the acquisition of Cité du Commerce Électronique by GWL Realty Advisors (GWLRA). The two towers comprising 27 and 17 storeys and totaling 1 msf were sold for $429 million at a cap rate of 5%. The Class-A office complex will be home to the Laurentian Bank headquarters starting 2018.

Public pension fund PSP Investments recently sold the last three properties they owned on Chabanel Street. The buildings located at 99, 333 and 433 Chabanel Street West, totaling 1.9 msf, were purchased by Howard Szalavetz Properties for $85.9 million. The former textile manufacturing facilities were bought in 2005 for $80.5 million by the investment group in partnership with Groupe Dayan.

After the announcement of the relocation of Yellow Pages, the property’s sole tenant, 16 Place du Commerce was purchased by Group Mach in January for $16.5 million. With a total rentable area of 165,000 sf of office space, the vacant, Class-A building was previously purchased in 2007 for $42.4 million by a German financial group while Yellow Pages still had a 10-year lease in place.

16 Place du Commerce was purchased by Group Mach in January for $16.5 million, which represents only

57% of the property’s municipal evaluation.



Address 99 Chabanel Street West, Montréal

Buyer Howard Szalavetz Properties

Seller PSP Investments

Price $8,882,946 ($17.62 per square foot)

Total Area 504,000 square feet






Address 16 Place Du Commerce, Nun’s Island, Montréal

Buyer Groupe Mach

Seller Real I.S. (BGV II Office Montreal Inc.)

Price $16,500,000 ($100 per square foot)







Address Cité du commerce électronique, Montréal1350 René-Lévesque Boulevard West1360 René-Lévesque Boulevard West

Buyer GWL Realty Advisors

Seller KanAm Grund Group


Total Area Cité du commerce électronique: 936,896 square feet 1350 René-Lévesque Boulevard West: 401,772 square feet1360 René-Lévesque Boulevard West: 535,124 square feet

SIGNIFICANT SALES, OFFICE GREATER MONTREAL AREA


GREATER MONTREAL AREAABSORPTION

GREATER MONTREAL AREAMARKET TRENDS BY SUBMARKET

MarketsAvailability(Q1-2016)

Availability(Q1-2017)

TrendNet Rent

(Q1-2016)

Additional Rent

(Q1-2016)

Gross Rent (Q1-2016)

Net Rent (Q1-2017)

Additional Rent

(Q1-2017)

Gross Rent (Q1-2017) Trend

Clas

s A

Downtown 12.7% 12.1% $19.30 $21.13 $40.43 $19.46 $21.70 $41.16

East End 17.0% 19.0% $13.58 $12.35 $25.93 $12.93 $12.05 $24.98

Laval 16.0% 12.0% $15.72 $12.41 $28.13 $17.67 $12.24 $29.91

Midtown 8.0% 11.9% $13.42 $15.14 $28.56 $13.13 $12.18 $25.31

South Shore 15.0% 16.7% $16.60 $11.94 $28.54 $16.60 $11.72 $28.32

West Island 27.4% 20.7% $15.50 $13.76 $29.26 $15.58 $14.46 $30.04

Clas

s B

Downtown 12.6% 13.0% $13.09 $16.96 $30.05 $13.52 $17.09 $30.61

East End 10.4% 13.7% $12.25 $7.81 $20.06 $11.83 $8.14 $19.97

Laval 23.5% 23.4% $12.00 $11.26 $23.26 $11.50 $12.09 $23.59

Midtown 15.7% 17.8% $12.09 $11.55 $23.64 $12.11 $10.72 $22.83

South Shore 16.4% 12.4% $10.69 $9.58 $20.27 $11.13 $11.52 $22.65

West Island 19.0% 20.0% $12.71 $12.79 $25.50 $11.50 $13.04 $24.54

All

Clas

ses

Downtown 12.3% 12.2% $15.43 $16.85 $32.28 $15.74 $17.31 $33.05

East End 13.3% 15.9% $13.58 $12.35 $25.93 $12.93 $12.05 $24.98

Laval 18.4% 16.0% $15.19 $12.25 $27.44 $15.20 $12.18 $27.38

Midtown 16.1% 16.7% $12.24 $11.02 $23.26 $12.15 $10.47 $22.62

South Shore 15.0% 16.7% $12.90 $10.04 $22.94 $14.10 $11.37 $25.47

West Island 23.9% 20.7% $13.46 $13.03 $26.49 $12.67 $13.22 $25.89

Source : Altus InSite, Altus Group Limited


Q1-2011 Q1-2012Q1-2007 Q1-2013Q1-2008 Q1-2014Q1-2009 Q1-2015Q1-2010 Q1-2016 Q1-2017

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SIGNIFICANT LEASING TRANSACTIONS, OFFICEGREATER MONTREAL AREA

Address Complexe De Gaspé, 5455 De Gaspé Street, Montréal

Tenant Ubisoft


Type Expansion

Address Maison Manuvie, 900 De Maisonneuve Boulevard West, Montréal

Tenant Ernst & Young


Type New lease

Address 1 Place Ville Marie, Montréal

Tenant IBM


Type New lease

Address 1010 De La Gauchetière Street West, Montréal

Tenant Canadian National Railway


Type New lease

Address Tour SSQ, 1225 Saint-Charles Street West, Longueuil

Tenant Ville de Longueuil


Type New lease


OFFICE CONSTRUCTION UPDATEQ1 2017 / GREATER MONTREAL

Now entirely stripped, Tour de Montréal – the Olympic Stadium’s iconic tower – will soon be ready for the installation of a new curtain wall. The construction site includes Canada’s highest crane, sitting at over 200 metres high. In 2018, over 1,000 Desjardins employees will be moving into 155,000 square feet of office space located in the tower.

The construction of the new Visa Desjardins building located at 450 De

Maisonneuve Boulevard West is nearly complete. The first employees started moving

into their new offices during the first quarter.

AVISON YOUNG TRANSACTION




At 1275 Des-Canadiens-de-Montréal Avenue, the construction of condominium skyscraper L/Avenue is still underway, and the office segment is now home to WeWork, who occupies 60,000 square feet of office space on three floors of the building.

In the heart of Quartier des spectacles, the construction of Îlot Balmoral is well underway. Located between

Place des Festivals and De Bleury Street, the new, 13-storey building will be home to the National Film Board of Canada.

OFFICE CONSTRUCTION UPDATEQ1 2017 / GREATER MONTREAL




Construction of the long-awaited project Carré Saint-Laurent started in early 2017. Adjacent to Monument National, Phase 1 will include nearly 151,000 square feet of offices spread over eight floors to be occupied by the Quebec government. The first phase will also include a 175-stall, 3-level underground parking with electric vehicle charging stations.

The completion of Maison Manuvie, at 900 De Maisonneuve Boulevard West,

is expected for the summer of 2018. The building will be home to Manulife and to

Ernst & Young, who will occupy 73% of the total office area.




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]

TOTALAVAILABILITY

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 O

FF

ICE

AV

AIL

AB

ILIT

Y


Downtown East End Laval Midtown South Shore West Island

TOTA

L O

FF

ICE

AV

AIL

AB

ILIT

Y

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Source : Altus InSite, Altus Group LimitedQ1-2016 Q1-2017

Downtown GMA

2007 2008 20132009 20142010 20152011 20162012 2017


12.3% 12.1%

13.3%

15.9%

18.4%

16.0%

23.9%

20.7%

15.6%15.1%

16.1%16.7%

OFFICE MARKET REPORT Q1 2017 / GREATER MONTREAL 2017-05-10 · Q1 2017 OFFICE MARKET REPORT GREATER...

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