(Montreal) High-end office space continues to be popular with corporate tenants. The gap between vacancy rates for these buildings and lower-end ones has widened further in several city centres across the country, according to a new report from commercial real estate services firm CBRE.
The study, released this week, shows that the availability rate remained relatively stable at 16.4 per cent across Canada for Class A (high-end) office buildings in the second quarter of 2024. So-called “prestige” assets, which represent the top tier of this category, posted a rate of 10.3 per cent, down from 11.2 per cent in the first quarter.
Conversely, the vacancy rate for lower quality buildings (i.e. categories B and C) continued to increase to reach 24.9%, according to the report on office real estate in Canada.
In downtown Montreal, the availability rate for Category A spaces increased from 14.7% to 14%, while that of Category B reached 22.6%, compared to 21.4% in the first three months of the year. For the so-called “prestige” segment, the percentage is 7.2%. It was 9.8% in the first quarter.
This shift toward high-end office space has been observed for several years, says CBRE executive vice president David Cervantes. The report notes that corporate tenants are “exodusing toward quality, leaving behind increasingly obsolete product.”
“Which explains why our best buildings will fill up faster than those that are old or need investment. […] “We are seeing some Class B buildings that have vacancy rates above 50%,” Cervantes said in an interview.
The classification of office buildings takes into consideration different factors such as location, quality of the building and its amenities. Category A spaces are considered high-end in particular for their excellent accessibility and high visibility on the market.
Better experience wanted
Mr. Cervantes says companies are no longer looking for just quality, but also for an “experience” within the premises. Building owners will make significant investments, among other things, in ground-floor entertainment, concierge services and food services, he says.
Tenants are becoming more and more demanding. They will increasingly choose better quality environments for sure, but also owners who offer a better experience.
David Cervantes, Executive Vice President at CBRE
The redevelopment project at 600, rue de La Gauchetière Ouest by Kevric is an example of an investment aimed at improving spaces in order to reach a clientele looking for the highest end, says Mr. Cervantes.
PHOTO DOMINICK GRAVEL, LA PRESSE ARCHIVES
600, rue de La Gauchetière
The real estate corporation has successfully attracted CN’s head office, which will occupy the first 18 floors of the building in Montreal’s Quartier International by 2028.
In a press release dated May 9, which announced the arrival of the railway company, it is indicated that “the complete redevelopment of the tower will offer a new generation working environment to its occupants.”
The building’s occupancy rate was over 80% as of the release. Only the five floors at the top of the building were still available.
Overall vacancy rate
According to the CBRE report, the overall vacancy rate in downtown Montreal was 17.4% in the second quarter, compared to 17.7% in the previous quarter. It is the third-best rate ahead of Toronto (18.1%), but behind Ottawa (14%) and Vancouver (10.8%).
Historically, the Quebec metropolis has always had an average availability rate above 10%, while Toronto and Vancouver were at lower levels, notes Mr. Cervantes.
“It’s a less dramatic difference than what we’re currently seeing in Toronto, which before the pandemic had a vacancy rate of less than 5%,” he says.
Downtown Montreal posted positive second-quarter net absorption of 1.2 million square feet. The addition of National Bank’s fully leased space at 700 and 800 Saint-Jacques Street contributed to this figure, Cervantes said.