Downtown office towers continue to empty
With the massive adoption of telecommuting, companies are reducing the size of their office space.
Empty chairs, huge offices where you only pass & #x27;a handful of workers: this is the portrait of several buildings in downtown Montreal.
With the mass adoption of telecommuting, many companies have reduced the size premises they rent. The office tower vacancy rate has doubled since 2020 to nearly 18% and may continue to climb.
The Montreal company Cook It, which specializes in ready-to-eat and ready-to-cook, is a good illustration of this trend. Although it is in full expansion, next January it will move its head office from Sherbrooke Street to premises three times smaller located in Old Montreal.
“We're going from 12,000 square feet (nearly 1,115 square meters) to 4,500 square feet (418 square meters), but it's going to cost us about the same,” says Cook It president and co-founder Judith Fetzer.
With employees working from home most of the time, the company has chosen to leave a building that is badly in need of renovations for a more prestigious building.
“It's really to improve the 'employee' experience, that's the first thing. It is to offer something inviting, welcoming, so that people really want to come. »
— Judith Fetzer, president and co-founder of Cook It
The current premises of Cook It, on Sherbrooke Street in Montreal.
Partner at Avison Young, real estate broker Laurent Bennarous observes that several companies are making similar decisions. People trade two square feet in a regular building for one square foot in a premium building, and in the end the occupancy cost is the same for them. It'sa migration to quality products.
But in the end, the rented areas decrease. In the business district, office tower vacancy rates have risen from 9% to 18% since the start of the pandemic.
“That's to say that in downtown Montreal, you have the equivalent of three times the 1 Place Ville Marie that has freed up.
—Laurent Bennarous, Partner at Avison Young
1 Place Ville Marie is one of the tallest skyscrapers in Montreal and has over 1.6 million square feet of office space.
And the offices continue to empty. When their leases, typically 5 to 10 years in length, come to an end, many businesses shed excess space. What we see on average is a 20% to 30% reduction in rented space, says Laurent Bennarous.
In the office space sector , a 10% vacancy rate is considered the market equilibrium point. It was in favor of landlords before the pandemic and swung in favor of renters virtually overnight.
To attract and keep their customers, landlords must reduce their rental prices and offer increasingly important incentives, says the vice-president of the firm CBRE in Montreal, Denis Charbonneau.
It's a competition, it's an open market. For a tenant to choose to move into one building over another, a landlord is going to say, I'm willing to give you $100 a square foot so you can move into my space and I maybe give you 12, if not 24 months free rent.
In this context, buildings that are less well located or that are aging will be neglected. We are going to see renovations and we have already seen that with a few buildings here in Montreal, underlines the first vice-president and general manager of CBRE in Montreal, Ruth Fischer.
The big boss de Canderel, Brett Miller, met us in a tower on McGill College Avenue for our interview. His real estate development company manages several buildings in downtown Montreal and elsewhere in the country.
He takes us to the premises of a tenant where there are a few rare workers among several dozen empty offices. Even though the view of the metropolis is breathtaking, employees seem to prefer to work from the comfort of their homes.
Despite everything, the businessman, who has been working in real estate for more than 30 years, displays a certain optimism. He thinks more workers will be back in the office in 6 to 12 months.
Some companies have said, “We're closing our offices completely just to save money.” ;. But there are others who say: "No, we will rent in the best buildings, the best spaces, we will reinvest to in fact "re-attract" our employees to work".
Canderel CEO Brett Miller in a tower room at 1981 McGill College Avenue.
But Brett Miller agrees building owners need to be flexible, including offering shorter leases, and making them as attractive as possible .
At 1981 McGill College Avenue, for example, a workers' lounge has been set up in the lobby and a physical training center is under construction. Employees won't need to take out a membership and pay for a gym, they have it in their workspaces.
That's not including classes yoga, Halloween and Christmas celebrations… In short, building owners now have to show off to stand out.
“Think of it as a boutique hotel. It's not just the bed you're renting, you're renting an experience, so that's the challenge for owners today.
—Canderel CEO Brett Miller
Before the pandemic, more than 300,000 people converged downtown Monday through Friday to work in the office towers. The drop in traffic resulting from teleworking is especially felt in businesses that are specially intended for them.
You can imagine the cobbler, the cleaner or the sandwich counter that used to be inside the office tower, [they] are the first to really suffer from this absence of workers, says Glenn Castanheira, the general manager of the commercial development company Montreal centre-ville.
< p class="e-p">But overall, traders are holding up. The commercial vacancy rate is currently hovering around 15% in the business district. If we take Sainte-Catherine Street, which is really the backbone of downtown, several retailers report having sales similar to or better than 2019.
“There is no carnage, we are not far from where we were before the pandemic. »
— Glenn Castanheira, General Manager of Montreal Centre-Ville
The director of the Montreal downtown business development company, Glenn Castanheira
The vitality of the city center increasingly relies on its growing local population. From 2016 to 2021, the number of residents has increased by 17% in the Ville-Marie borough, reaching nearly 105,000 people. Only downtown, the increase is 40%.
Downtown residents will never be able to make up for a loss of goodwill on their own, whether workers, visitors or others, says Glenn Castanheira. Conversely I would say to you, could the city center live without its residents? Well then, I would be a lot less optimistic.