OFFICE MARKET REPORT | 3rd QUARTER 2021
Availability
As the general population now embarks on a new phase in the recovery efforts and companies start bringing employees back to the office, the consensus seems to be that the hybrid model will be a part of the corporate strategy, and not only on the short term.
Compared to pre-pandemic levels, the availability rate in the Greater Montréal Area (GMA) has sky-rocketed and is now sitting at 15.5% compared to 10.8% at the end of March 2020. This represents an additional 5 million square feet of office space now available for lease. However, between the 2nd and 3rd quarter of 2021, availability in the GMA only saw a minimal increase from 14.9% to 15.5%. This is consistent with the trend over the past two quarters where availability maintained an upward trajectory but at a slower rate than what was recorded at the peak of the pandemic.
In Downtown Montréal, availability for all office classes has increased by 67% compared to what it was before the lockdown in March 2020. Quarter over quarter, however, availability in Greater Montréal only increased by 0.6 percentage point in the third quarter of this year, which seems to indicate that the market is starting to level off.
The biggest casualty has been the B-class office buildings where availability went from 8.8% to 15.9% in the span of 18 months across the GMA, but it’s interesting to note that over the last quarter, all sub-markets except for Downtown Montréal saw a dip in availability for B-class space. In fact, Midtown recorded a significant decrease in availability dropping from 19.8% to 18.1% over the past 3 months.
Sublease availability now seems to be tapering off
The sublease market has also seen a lot of activity since the start of the pandemic with the availability rate for sublease spaces jumping from 1% at the beginning of 2020 to 2.3% in the last quarter. During the early stages, companies instinctively looked to reduce their footprints by putting a portion of their office space on the sublease market, but as the situation progressed, they also faced the reality that the sublease route was not always the best option.
Sublease availability now seems to be tapering off, either as a result of lease expiries or companies needing their space back to cater for employees coming back to the office. Some companies are realizing that the workplace optimization that had been done pre-pandemic is no longer realistic and that they must review their employee occupancy to meet health concerns. The biggest challenge is to determine the optimal hybrid model (remote and in-person work) especially since the model will evolve in the coming years.
Absorption
The Greater Montréal Area saw a total negative absorption of – 369,137 square feet in the third quarter of 2021. The biggest negative absorption was recorded in Downtown Montréal with -713,603 square feet while East-End, Laval, Midtown and West-Island all experienced a positive absorption this quarter. Midtown had the biggest positive absorption with 176,147 square feet. This might indicate that the idea of satellite offices could slowly be taking root among some space users. While Downtown Montréal still maintains its allure for corporate users, it seems that some companies are favoring the suburban areas and midtown to be closer to their employees.
The advancement of the REM is certainly a consideration as the new transit system will provide an effective and attractive mode of transport for employees to get to their offices.
Currently, decision-makers are in the process of re-assessing their workplace strategy to reach the optimal balance between corporate vision, location, size, and workplace requirement. While there is no one-size-fits-all approach, there are certain benchmarks that should be considered when it comes to identifying the right mix. With so much availability on the market, there are opportunities for tenants to take advantage of the market and secure spaces that fit with their long-term plans.
