Montreal Office Landlords Focus on "Turnkey Readiness"

The office market in Montreal looks a lot like the office markets in large US cities, including New York:

A flight to quality in Class A towers filled with amenities, especially new buildings, and a growing number of aging Class B and C products that are at risk of being deemed “obsolete” in the post-pandemic reality of hybrid work and reduced office footprints.

Office building owners and landlords competing with new towers have to seize on anything they can leverage to generate profitable transaction volume. In Montreal, many of them are focused on “turnkey readiness”—the speed at which an occupier can move into a space.

“It gets more complicated to make the numbers work if there’s a lot of work that has to go into making a space ready for use. Progressive landlords are realizing that and offering turnkey suites is one way to increase the transaction volumes,” said Ruth Fischer, CBRE’s Quebec managing director.

In CRBE’s 2023 Montreal CRE Outlook, released this month, Fischer projected that office vacancies will continue to increase in the city in 2023.

“A key focus will be around turnkey readiness, or the speed at which an occupier can move into a space,” Fischer said. “There is real concern around construction costs and delays, not to mention the expertise needed for office space fit-out–and especially considering what the shorter-term occupiers are looking for.”

Montreal’s industrial market, the busiest in Canada, recorded its 15^th consecutive quarter of positive net leasing activity in the fourth quarter and a vacancy rate of 1.2%.

“Montreal still has unbelievably low vacancy and we’ve had the highest rate of rental rate growth. I expect we’ll see that rate growth start to moderate this year—we haven’t reached the top but I think the growth is slowing,” Fischer said, in CBRE’s outlook report.

“We don’t have a huge amount of new product coming to the market this year,” she added. “There will be some pressure release, but not enough to bring us to a more balanced market.”

Fischer said construction cost and interest rates will be “the big story” for Montreal’s multifamily sector.

“The costs of construction materials and labor, plus rising interest rates, present big challenges. It will take a lot of creativity on the part of multifamily developers, and I don’t know if it will all come together very frequently,” the CBRE director said.