The pandemic will leave scars on the planet’s city centers which will take the form of significant losses in the value of office buildings and businesses, according to a study.
McKinsey estimates that the value of office buildings will decline by 26% between 2019 and 2030, in a so-called moderate scenario.
Under this scenario, the presence of employees in the office continues to increase gradually until 2025 without however reaching pre-pandemic levels. The model incorporates other factors such as the trend towards the densification of workstations, the growing market share of knowledge-related jobs, as well as the automation of part of the work performed by white collar workers.
The study focuses on nine metropolises that monopolize a disproportionate share of the growth of their country’s economy. These include New York, San Francisco, Houston, Paris, London, Munich, Tokyo and Shanghai.
American cities, whose downtown function is concentrated around offices, suffer more than the more diverse downtowns of Paris and London.
In turn, less full offices translate into a drop in the number of consumers in downtown shops. Here too, impairment losses are expected. Demand for commercial space will experience a sustained decline of 9%, McKinsey calculated in the nine cities under study.
According to the consulting firm, the solution involves the multiplication of uses in the heart of the business district, giving pride of place to housing. Building owners are also invited to consider the cohabitation of uses within the same building, or even on the same floor.
Montreal has no less than 611 office buildings that have the potential to be converted into housing, according to brokerage agency Avison Young.
This figure represents 47% of the 1,289 buildings analyzed by the company, the Montreal Gazette reported earlier this week.
The identification was made through the broker’s internal analyzes based on two main criteria: buildings built before 1990 and having a floor area of less than 15,000 square feet. Larger areas generally prevent natural light from illuminating the entire floor.
“Beyond age and square footage, other criteria should be considered – such as the feasibility of a specific building, cost, location and surrounding amenities – to determine the best bid,” said Stephen Silverstein, senior director and general manager, U.S. Studio Project and Construction Management at Avison Young, in a statement.
Since the pandemic and the rise of teleworking, city centers have been shunned by white-collar workers during the day. The office vacancy rate is approaching record levels.
The impact is particularly felt in older buildings, known as category B or C.
“Owners of old buildings therefore have the opportunity to rethink their investment strategy and explore different options, whether to keep the building as it is, to renovate or modernize it, to innovate by reassigning or adapting it to other uses, or even to redevelop it,” suggests the real estate agency.
In practice, Lachance immobilier is converting 16 Place du Commerce into housing on L’Île-des-Sœurs. Last month, NexArm Investments, a real estate subsidiary of the Armoyan family, acquired the former Standard Life tower at 1245 Sherbrooke Street West with a view to converting it into a rental apartment building.
According to data from Avison Young, up to 34% of office properties in 14 major North American markets could be potential candidates for conversion, or nearly 9,000 properties in total. Office-to-home conversions could open the door to potential housing for thousands of families.
But converting offices into housing is easier said than done, with costs and obtaining permits being among the main hurdles.
According to a recent study by Cushman
Obtaining regulatory authorizations is not easy. A building conversion represents a construction site of two to four years, estimated Jean Laurin, president of Avison Young in Quebec, in the same article.
Appeared in Montreal in 2009, the LEED certification movement has never stopped progressing since, reaching today 70% of the total surface area of category A office space in downtown Montreal.
Category A represents the most luxurious and modern offices.
The brokerage agency also notes that the certification levels are increasingly high. LEED Gold has supplanted LEED and LEED Silver, while LEED Platinum has been advancing rapidly since 2020.
LEED works according to a point system relating to its environmental footprint, its location, its geographical location, etc. The higher the certification, the higher the required score.
Certified offices have a lower availability rate than offices without certification, noted Jean Laurin, president of Avison Young in Quebec. LEED Platinum offices have an availability rate of 18.3%, LEED offices in general are at 19.7%, while offices without certification have an availability rate of 21.9%.
“It confirms the move upmarket that we are seeing in the market,” says Mr. Laurin. Tenants who shop for space in 2023 take advantage of a favorable balance of power to choose better quality offices on advantageous terms.