Space absorption accelerating in downtown Montreal office market, according to NKF Devencore

 In its Real Estate Market Study, Newmark Knight Frank Devencore reported that vacancy rates began to stabilize in downtown Montreal’s office buildings through the first six months of 2010. In late 2008 and throughout 2009, as the global financial crisis halted business growth, combined Class “A” and Class “B” vacancy rates had escalated steadily, rising from 4.9 per cent to eight per cent. For the remainder of 2010 and into 2011, NKF Devencore anticipates increasing activity in the office leasing market, and a corresponding drop in the amount of available Class “A” and Class “B” space.

“There are encouraging signs that the strong demand for space that existed just over two years ago is once again being revived. Indeed, we have recently seen a good deal of leasing activity taking place that has not yet had an impact on our statistics,” said Jean Laurin, president and CEO of NKF Devencore. “However, it will take some time before new leasing activity pushes vacancy rates to pre-recession levels. And until these rates get back to a lower level and net effective rents increase, we are unlikely to see any new development downtown.”

The overall Class “A” and Class “B” vacancy rate in Canada’s major cities stood at 7.1 per cent at the end of Q2 2010, up approximately one per cent from mid-2009. It should be noted, however, that the inventory of office space increased by nearly 6.5 million square feet, or approximately three per cent, over the same period. Much of this new inventory came onto the market in Toronto and Calgary, where significant development projects were well underway when the recession hit. NKF Devencore expects that the positive space absorption that has taken place over the past year should accelerate in the months ahead as companies consider implementing certain expansion programs that were deferred in 2008 and 2009.

“A recovering economy should begin to generate an upsurge in leasing activity,” said Laurin. “At the same time, we are seeing tenants taking a harder look at how they might best manage their real estate portfolios to help regulate operating costs, of which occupancy expenses represent a significant portion. Whether tenants are relocating or restructuring an existing lease, they should work with their advisors to negotiate a flexible agreement that may include specific provisions for either growth or downsizing. Leveraging real estate strategies that boost efficiency can make a substantial impact on the bottom line.”

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