OFFICE MARKET REPORT | 4th QUARTER 2021
Availability
The availability rate for the office market in the Greater Montréal area (GMA) has increased again during the fourth quarter of 2021, reaching an all-time high of 16.5%, up from only 10.9% just before the pandemic.
And after showing encouraging signs of stability in the first half of 2021, availability rates started trending upwards again in the second half of the year.
The Downtown market, which makes up half of the GMA’s office inventory, is the hardest hit by the low level of leasing activity. The availability rate for the Downtown market jumped by 1.6% percent between Q3 and Q4, which is the most significant increase since the third quarter of 2020. The increase in availability rate in Q4 was almost as significant in Montréal East (+1.4%) and in Laval (+1.4%).
The Laval market had shown signs of improvement in 2021, but several large spaces, including two new sublets, were listed on the market in November and December. On the other hand, availability rates in the Midtown and West Island areas have remained stable in Q4, for a third consecutive quarter. The South Shore is the only node which has seen a decrease in availability, from 15.5% in the third quarter to 14.3% in the fourth quarter.
Availability rates in Q4 2021 are obviously much higher compared to 2020 pre-pandemic levels, especially in Laval (+7.8%) and Downtown (+7.3%), but also in Midtown (+4.1%), Montréal East (+4.1%) and the South Shore (+3.1%). Only the West Island market shows a decrease of availability (-1,6%) since March 2020. We have since seen a few signs of improvement throughout 2021 in some suburban markets where the availability rates decreased year-over-year, namely on the South Shore (-0.7%), in the East-End (- 0.8%) as well as the West Island (-1.2 %). The availability rate in Laval also followed this downward trend during most of 2021, up until the fourth quarter, when a major increase in availability wiped out the 80-percentage-points decrease cumulated since Q1. Overall, the positive variations in availability seen in the suburbs mostly favored B-class buildings.
The situation has been stable in the past year in Midtown which saw fewer conversion projects from former industrial to lofts office space. Class-A buildings, which represent only 13% of the Midtown inventory, have the lowest availability rate of all markets, as has been the case throughout the pandemic.
While the few signs of improvement in these submarkets are encouraging, the situation for the Downtown office market remains a concern across all building categories. Unlike other submarkets, the amount of space available for lease and sublease Downtown has been steadily increasing since March 2020 and there is no sign indicating when this trend will end.
Sublease availability in the Downtown market has gradually tightened
Sublease space represents an increasingly large portion of the total available supply. In the first few months of the pandemic, the initial reaction from several companies was to try to sublease their unused space. Every quarter since March 2020, an average of over 225,000 square feet (sf) was added to the sublease market. The volume of sublets on the Montreal office market grew from 8.3% of total available space just before the pandemic to 14.7% in Q4 2021 – an unprecedented proportion.
For the Downtown market, that share of total availability increased from 6.2% in March 2020 to 14.8% in Q4 2021, the highest since the 16.0% peak reached in 2013. Since then, sublease availability in the Downtown market had gradually tightened, to a point where less than 250,000 sf of sublet space was available in early 2020, which is five times less than what is listed on the Downtown sublease market today. For Downtown class-A buildings alone, a total of 550,000 sf for sublease was listed in the fourth quarter, which represents 13.0% of the total available space, and three times more than before the pandemic.
Although this soaring volume is concerning, it’s important to put things into perspective. For starters, the share of available space from subleases is lower in Downtown Montréal than in Downtown Toronto (21.2%) or Downtown Vancouver (23.5%). Moreover, the amount of sublease space in the heart of those cities has been steadily decreasing since the beginning of 2021, which means that the situation could also stabilise in Montréal in 2022. Considering that most of the unused space put up for sublease by companies during the pandemic is still available, nothing prevents sublessors from taking their space back, in part or in whole, if and when they need it. The workplace strategies developed amidst the uncertainties of 2020 have since been reviewed many times, especially as we better understand the adverse effects of remote work on a full-time basis for various types of jobs and employees. That said, we know that several large blocks of space currently on the sublease market are part of a space-reducing program of a permanent nature and are not likely to be reclaimed by the sublessor.
Absorption
The greater Montréal market saw a negative absorption again in the fourth quarter of 2021, which accounts for slightly over 100,000 sf, attributable mostly to the Downtown market. The other three submarkets which saw negative absorption this quarter – Montréal East, Laval, and Midtown – had modest quarterly variations relative to their total inventory, ranging from 50,000 to 70,000 sf. Conversely, the absorption was positive in the West Island and on the South Shore, with gains of nearly 30,000 sf each in Q4.
Moreover, absorption on the South Shore has been positive since March 2020, especially in the Solar Uniquartier and DIX30 nodes. This small pocket of the market boasts a net growth of 130,000 sf of leased space in the fourth quarter, which is significant, considering that it only represents 5% of the total GMA inventory. The 3400 de l’Équinoxe project, a new tower of 230,000 sf that will be delivered in 2022 in Solar Uniquartier, is already nearly 50% leased, which seems to confirm that access to the REM is an attractive feature for tenants. This new address offers a high-quality work environment with good connectivity to transit for the growing pool of workers residing on the South Shore and expending further since the pandemic.
