Hybrid work could push Montreal downtown office vacancy rate to 21%: report

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A recent Chamber of Commerce poll found that 76 per cent of workers want to work from home either full time or part time once the health crisis is over.

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More than one downtown office in five could become empty over the coming years as so-called hybrid models take root and employers look to shrink their real-estate footprint, a new report says.

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Vacancy rates downtown could eventually jump to 21 per cent from 15.8 per cent now following the pandemic, according to a study released Friday by the Chamber of Commerce of Metropolitan Montreal. Those additional vacancies would free up 11.4 million square feet of space — about 11 times Place Ville Marie‘s capacity.

Like other corporate hubs around the globe, downtown Montreal has seen business and foot traffic plummet since the start of the pandemic as governments and companies kept workers home to reduce contagion risks. In the spring of 2020, average office vacancy rates in Greater Montreal were 10.8 per cent. Downtown, the rate was 8.8 per cent.

Most experts predict hybrid work will outlive the pandemic. A recent Chamber of Commerce poll found that 76 per cent of employees want to work from home either full time or part time once the health crisis is over. Hybrid models will cut the number of workers downtown by up to 25 per cent, the Chamber of Commerce says.

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With about 55 million square feet of commercial real estate, Montreal boasts the second-largest concentration of business office space in Canada. About seven per cent of downtown office leases expire every year.

So far at least, lower-quality buildings are suffering the most. Vacancy rates in so-called Class B and C buildings have doubled since the start of the pandemic, the report shows. While converting some of these buildings to residential could make sense, urban planners should be careful not to remove too much office space because startups may eventually consider moving downtown, Chamber of Commerce head Michel Leblanc said.

A drop in the value of downtown business properties would trigger major revenue shortfalls for the city of Montreal. Downtown generates about one-third of Montreal’s non-residential property taxes.

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Downtown Montreal is home to some 300,000 employees and 11,000 businesses, including 26 companies that are headquartered there and have annual revenue of $1 billion or more. Some 700 subsidiaries of foreign companies have offices there.

Montreal’s success in luring foreign investment has helped mitigate the pandemic’s economic impact. Montreal International, the city’s investment-promotion agency, estimates it has supported 97 foreign companies downtown since March 2020, resulting in inflows of $2.7 billion and the creation of 10,385 jobs.

To further limit the damage, the Chamber of Commerce said Friday it has created a new online marketplace that aims to match companies with surplus real estate and those that are looking for office space.

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Called Espaces et Cie, the platform could be especially attractive to banks that lease large offices, Leblanc said. With enough financing to operate for a year, the platform could attract small businesses and startups downtown, he said.

“The goal is to regenerate the energy of the downtown core,” Leblanc said.

As hybrid work becomes entrenched, overall spending downtown is expected to drop 14 per cent from pre-pandemic levels, Leblanc said.

“My big concern is to see the commercial base collapse,” he said.

With this in mind, the Montreal Centre-Ville downtown merchants association is working on a series of events designed to draw visitors to the area, president Glenn Castanheira said Friday.

“Throughout May, there’s going to be some wonderful announcements of projects that we’ve been working on for over a year,” he said. “It’s going to be a good summer, but we need to stay on course and take care of basic things like cleanliness and safety. Keep calm and carry on.”

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