Last fall’s inauguration of Cadillac Fairview’s Deloitte Tower on the southwestern edge of downtown Montreal seemed like a reason to uncork the champagne, ending a 20-year drought in new office construction in what remains Canada’s second-largest commercial property market.

It also marked the escalation of a war for tenants between real-estate rivals Cadillac Fairview and Ivanhoé Cambridge – and by extension the huge public-sector pension funds that own them – in a market with a double-digit vacancy rate and underwhelming job-growth prospects.

Deloitte moved into the tower after vacating 185,000 square feet in the 55-year-old Place Ville Marie, or PVM, the iconic Ivanhoé property that anchors the downtown core.

Cadillac Fairview is planning two more office buildings near the Deloitte Tower – in an area dubbed Quad Windsor, surrounding the city’s Bell Centre – as part of a $2-billion development that includes two condo towers bearing the insignia of the Montreal Canadiens. The condos are so popular that the developer just decided to stack 12 more floors on top of the second tower’s originally planned 37 storeys.

While all this activity promises a property-tax boon for the pro-development administration of Mayor Denis Coderre, and cheers locals envious of a Canada-wide building boom that seemed to have bypassed Montreal in recent years, it is also raising fears of a growing glut that could drain the existing downtown core of its vitality as tenants are lured to newer buildings on the fringes.

“For sure, the new product has a positive impact on property taxes for the city,” offers Bernard Poliquin, Invanhoé Cambridge’s senior vice-president for the Quebec office market. “But it’s a double-edged sword in a market that already has a lot of vacancies.”

Indeed, the office vacancy rate in Montreal’s downtown core is already pegged by local brokers at about 15 per cent, or almost three times Toronto’s rate. And while Calgary’s rate has edged even higher, the western business capital still has brighter long-term job growth prospects than Montreal. Which raises a worrying question: Whither Ste. Catherine and McGill?

The intersection of Ste. Catherine Street and McGill College Avenue, once legendary for its vibrancy, is not what it was. As developments go up outside the traditional perimeter of the downtown business district, which is full of vacant lots as it is, some are asking whether it will suck even more life out of the core.

“Downtown is going through a difficult period,” Mr. Poliquin says. “Our main preoccupation is ensuring [the centre of] Montreal’s downtown since 1961 remains where it is.”

Ste. Catherine Street remains a destination for shoppers, many of whom inhabit condo developments that have gone up on abandoned industrial lots southwest of the downtown core. And Ivanhoé, a unit of the giant Caisse de dépôt et placement du Québec, has a $1-billion plan to renovate PVM, the Queen Elizabeth Hotel and the Centre Eaton shopping mall. It is also building a 27-storey office building just off the Ste. Catherine strip, luring Manulife Financial Corp. as its lead tenant.

But with Montreal already home to about six million square feet of vacant office space – and an estimated two million square feet of new space in the construction pipeline – Ivanhoé was among the opponents of a request last year for zoning changes to allow for taller buildings on the Quad Windsor site. Cadillac Fairview, a unit of Ontario Teachers’ Pension Plan, had sought an increase in the height limit to 210 metres from 120 metres.

The Coderre administration initially embraced Cadillac Fairview’s request. But after public consultations, the city ended up settling on a compromise – a 170-metre height limit for Quad Windsor – which would still allow for hundreds of thousands of additional square feet of office space if Cadillac Fairview proceeds with its two planned towers.

As it is, the Deloitte Tower remains about 30 per cent empty even after Rio Tinto Alcan signed a lease for 190,000 square feet, vacating its heritage Sherbrooke Street address.

The old Maison Alcan is now the subject of a controversial redevelopment proposal put forward by its new owners, including Cirque du Soleil founder Guy Laliberté, who are seeking to build a 30-storey tower on the site. Or more space yet.

For many Montrealers, the sight of building cranes downtown is a welcome sign of renewal, even if little of what is being built or planned excites architectural critics. (The editor of one Paris-based architectural magazine dismissed the Deloitte Tower as “developer architecture.”)

But without a growing employment base, it’s not clear that building new towers will leave the city any better off, especially if it serves to hollow out pockets of the existing downtown core.

The only ones breaking out the champagne will be the tenants enjoying bargain rents.