According to Altus Group, the office building availability rate in the Quebec metropolitan area (CMA) has fallen from 7.9% in the fourth quarter of 2019 to 11.9% in the first quarter of 2023.
This represents an increase of 50.63% and a change of 4 percentage points (points). This is the highest rate since 2000.
indicator
The availability rate represents the proportion of space that is either vacant or occupied by a tenant who has sent or received a non-renewal notice. It differs from the vacancy rate, which only takes into account the proportion of vacant space.
In Quebec City’s CMA, Altus Group lists 21.8 million square feet of rentable office space in 259 properties. Note that these numbers only include areas larger than 20,000 contiguous square feet.
Photo: Radio Canada / Bruno Boutin
Over the past three and a half years, the availability rate has increased by 8 points in downtown Québec and by 3.2 points in Sainte-Foy, but only by 1.4 points in the Northwest (Lebourgneuf) sector. On the south coast, it fell 2.5 points instead.
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The Registered Expert and General Manager of the Altus Group in Quebec, Alain Roy, attributes these differences mainly to the effects of telework, which are not the same from one sector of activity and from one place to another.
Attraction
When a company has a significant proportion of employees working remotely, it is more inclined to reduce the amount of office space it leases. Conversely, a company that uses little or no teleworking will tend to keep the same premises.
Government, large financial institutions and large insurance companies are employment sectors more suited to teleworking and they are located in downtown and Sainte-Foy. Quebec’s other sectors (South Coast and Northwest sectors) generally have smaller businesses where office presence is more common. The staff are on site, explains Mr. Roy in an interview with Radio-Canada.
Alain Roy confirms that the impact of telework on the availability of office buildings is particularly visible in downtown Quebec and in the Sainte-Foy sector.
Photo: Radio Canada / Bruno Boutin
The impact of teleworking becomes even clearer if we look at the development of the availability rate in certain sub-areas of the inner city.
More than double
In the inner city core, which essentially includes the Grande Allée, Chemin Sainte-Foy and part of Boulevard Charest, the office building availability rate is currently 24.2%, compared to 10.4% at the end of 2019.
Here, too, the greater presence of telecommuting tenants (authorities and large companies) is not unrelated to the increase in vacancies or space that is currently vacant.
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The availability rate has also more than doubled in the Saint-Roch district, where there is a concentration of technology companies, including those involved in video games, all conducive to teleworking.
Canadian trend
Alain Roy states that the greater increase in availability rates in central boroughs compared to the outskirts is not solely due to Quebec’s CMA. Other Canadian regions are seeing the same phenomenon.
In cities like Calgary, Montreal, Toronto and Ottawa, the proportion of vacant and available buildings is even higher (see table).
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Finally, the observed differences in the availability rates of the different building classes (A, B and C) also testify to the impact of teleworking on the market.
Large companies such as ministries and public institutions mainly occupy Class A buildings.
office towers
These are typically multi-story concrete and steel buildings located primarily in city centers and business districts.
In Quebec, the Class A availability rate has increased the most since the end of 2019.
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The Urban Development Institute (IDU) is the premier representative of Quebec’s commercial real estate industry, a sector that contributes $15.1 billion to the province’s GDP annually.
main concern
IDU Quebec Regional Director Stéphane Dion has no hesitation in saying that the impact of telecommuting on office building availability and occupancy is the industry’s top concern right now.
As of late 2019, right before the pandemic, 1 million square feet in Quebec City has become vacant and uninhabited, and of course that’s having an impact on our industry and then on our members who manage and hold those properties there, but that’s what it’s mostly about a side effect on the commercial arteries of the central districts, Mr. Dion hints in an interview.
He wants the Quebec government and the region’s major employers to follow in the footsteps of the Royal Bank of Canada (RBC), which has significantly tightened its telecommuting policies.
Stéphane Dion calls on the Quebec government to set a clear signal for presence work.
Photo: Radio Canada
The financial institution recently informed its employees that starting May 1, they will have to do face-to-face work at least three to four days a week.
Stéphane Dion points out that the arguments made by RBC to get its staff back into the office go beyond issues related to inner-city revitalization and the health of the real estate industry.
productivity
Not just for industry, but for the economy in general. The Royal Bank of Canada has made that clear. Without disclosing its indicators, it measured internally that there was a loss in innovation and productivity from teleworking from one end of its offices to the other, notes Mr. Dion.
“We are asking the government of Quebec and the city of Quebec […] to send a gradual return-to-work signal to revitalize inner-city cores, and then enhance work team innovation, collaboration and coherence. »
— A quote from Stéphane Dion, IDU Regional Director in Quebec
According to Stéphane Dion, this clear signal from the government and large companies is all the more important as the availability rate on the office property market in Quebec City will not decrease. In fact, the four-year surge could just be the beginning of the tsunami, he said.
Most of the large leases expire in 2 or 3 years. And this is where there will likely be a bigger shock, he predicts.
Stéphane Dion hopes government, financial institutions and insurance companies will be inspired by RBC’s new personal return-to-work policy. (file photo)
Photo: Portal/Mark Blinch/Portal
Alain Roy agrees. He points out that even if certain premises rented by government or companies are vacated for teleworking, the latter continue to pay rent until the end of their lease.
No immediate impact
At the end of the lease, the company, the government agency or the insurance companies make the decision to reduce their space or return certain space to the owner, which will ultimately increase the availability rate even more significantly , analyzes the executives of the Altus Group in Quebec.
“Not because the buildings are vacant today, because employees are working from home, does that necessarily have a direct impact on the market. »
— A quote from Alain Roy, Chartered Appraiser, General Manager, Altus Group, Quebec
This fails to take into account that, in parallel with the introduction of teleworking among its employees, the Québec government is continuing its efforts to reduce the percentage of rental space it occupies through the Société québécoise des Infrastructures (SQI).
Alain Roy mentions that increased construction costs are a barrier to converting office towers into residential buildings.
Photo: Radio Canada / Bruno Boutin
In 2018, well before the pandemic and the advent of remote working, the SQI announced its intention to rebalance its real estate/tenancy relationship in the office building segment.
Despite some delays caused by the pandemic, the public body is sticking to its 2023 target of achieving the 35% ownership / 65% rental ratio. As of March 31, 2022, the SQI occupancy rate across Quebec was 70%.
In an email to Radio-Canada, the SQI mentions that its real estate strategy is actually more adaptable to the telecommuting context.
Cost-benefit analysis
In cooperation with the departments and committees concerned, the SQI always analyzes the end of upcoming rental contracts, usually over a period of 18 to 24 months before they expire. This approach aims to identify the best option, taking into account the cost-benefit concept, writes media consultant Francis Martel.
“The non-renewal of rental contracts in apartment buildings is becoming topical, among other things, with the reality of teleworking in favor of home employment and thus brings rent savings. »
— A quote from Francis Martel, Media Relations Advisor, SQI
SQI is the largest tenant of commercial buildings in the Quebec region. Of the 767,100 m² managed space in the local market, 60.2% (461,800 m²) is let. The remaining 305,300 m² are spread over 15 SQI properties.
Quebec State officials are required to work in person at the office for at least two days each week.
Photo: Radio Canada / Bruno Boutin
Stéphane Dion says industry players, who are taxpayers themselves, understand the government’s desire to reduce the proportion of rental space in the housing stock.
rebalancing
The IDU’s Quebec regional director adds that its members are also aware that going back to work 100% in person is not an option. Nevertheless, they believe that a reorientation towards a greater presence of workers in the office is desirable.
Stéphane Dion sees this as a matter of coherence in relation to the various transport and mobility projects in the Québec City CMA (tram, public transport link, third link, etc.).
The Government of Quebec, the City of Quebec and the Government of Canada have planned significant investments to facilitate passenger transportation [vers le centre-ville]. People still have to move from one place to another, he argues.
In collaboration with Alexane Drolet