The Montréal commercial real estate market has tremendous wind in its sails, in all asset classes, and this trend is expected to continue through 2019 and well into 2020. Political stability in the province of Québec, along with low unemployment, consumer confidence and investor appetite (both foreign and domestic) in the Greater Montréal Area are all contributing. With the acquisition of McGill Commercial in 2018, a relocation this spring to 1000 de la Gauchetière West, and the building of a team of stellar commercial real estate agents and brokers, the Montréal office of Marcus & Millichap is well-positioned to service this market enthusiasm while quickly expanding our presence and visibility.
Québec is finally enjoying a high degree of political stability with notions of separation mostly faded into the background. The fiscal house is in order with five consecutive balanced budgets, a $5.6 billion surplus last year and a $2.5 billion surplus this year. Political and governmental stability has allowed for a renewed focus in Montréal to return to its longstanding heritage as a commercial hub that is open for business.
Montréal is experiencing historic low unemployment, increased wages and high consumer confidence. Rents are also considerably lower in the Greater Montréal Area than in many other major Canadian hubs, and renting is a popular life choice among millennials powering the Montréal workforce, which is also fueling demand in the multifamily sector.
Investors, both domestic and foreign are taking notice of the better yield spreads, compared to other Canadian markets, that Montréal currently offers. All asset classes are benefiting, with the multifamily sector leading the way in terms of volume, and the industrial sector showing the fastest growth:
As analyst Vincent Shirley and co-author Jenny-Kate Sgarbi note in an Altus Group Montréal Flash report [released in May], while total sales of investment property across Canada declined last year because of softening markets in Vancouver and Toronto, here in Montréal, investment volume jumped 18 per cent, to the tune of $6.5 billion in sales… The bulk of investment dollars went into apartment buildings in 2018, Shirley said, with the value of sales increasing 22 per cent compared with 2017 figures, to a total of $2.1 billion or about one-third of all real estate investment activity in the Montréal area. But the most notable increase, Shirley said, was in the industrial sector, which posted the largest absolute year-over-year dollar increase, rising $474 million to $1.2 billion. – Montréal Gazette
The trend continues in 2019 as this years’ Montréal Real Estate Forum had about 1500 participants, of which 20-25% were from out of town. Attendance has been at about 1000 participants on average in recent years.
As Montréal Regional Manager, Thierry Lessoil, quips, “the rising tide floats all boats.” Thierry came on board with the Montréal office of Marcus & Millichap last year, brings 30 years’ experience in the commercial real estate industry to the table and is a seasoned manager with a talent for encouraging the winning performance qualities in his team members.
Marcus & Millichap’s vast network of agents and culture of collaboration allows investors across North America and beyond to be exposed to any available assets that our Montréal office is offering. Equally, Montréal area investors will now have access to a vast inventory of assets for consideration both in Montréal and across the continent. Senior Broker, Louis Hoppenheim proclaims that Marcus & Millichap Montréal is going to be “loud and proud” about our presence in the commercial real estate market on the island of Montréal.
Montréal aligns well with the tenants of our business model as many of our advisors specialize in services for private investors in mid-market transactions in the neighbourhood of $5-10 million. The average transaction size in Montréal is $5-6 million and demand is strong:
There’s lots of private capital money available in Montréal. Investors are very quick to jump on opportunities, driving the market. Transaction time is fast and this trend will continue through 2019 into 2020. – Mickaël Chaput, First Vice President of Investments, Marcus & Millichap Montréal
In less than a year, and since Marcus & Millichap acquired McGill Commercial, our transactional volume has increased and our brand recognition is growing throughout the city. We’ve been re-tooling, with an office move from a boutique setting in Westmount to a spacious downtown office at 1000 de la Gauchetière West, consistent with the Marcus & Millichap brand. During our next phase, we are projecting significant organic growth as we build a dynamic team of commercial real estate professionals:
We will stand out from the competition in Montréal. We don’t try to be everything to everyone. We don’t do property management, or facility management. We specialize in investment advisory services, leveraging the incredible power of our MNet portal, which offers continental exposure to assets for sale and to all investors working with Marcus & Millichap, North America’s largest commercial real estate brokerage firm with thousands of dedicated agents collaborating to transact $61B CAD in 2018. – Thierry Lessoil, Regional Manager, Marcus & Millichap Montréal.
Thierry says that our agents are all specialists in various asset classes and locations and our Montréal Office is well-positioned to connect with the unique bilingual culture of the Montréal business community daily, and at events like our well attended Grand Prix cocktail party, featured below, which brought together many of the movers and shakers in Montréal CRE.
Although all asset classes are benefiting from the boom, investment is not equally distributed. Here’s a snapshot of the performance and prospects for each major commercial real estate class for 2019 through 2020:
The multifamily sector leads the way in volume at over 34 percent of total Montréal commercial real estate transactions in 2018 with acquisitions by Sweden-based Akelius and the entry of American-based Blackstone Property Partners. Affordable rents and renting as a lifestyle choice are powering demand for apartment rentals, which is expected to continue. Supply is limited and a significant portion of the inventory of purpose-built rental properties is ageing and in need of refurbishment or replacement, offering additional investment opportunities.
With over 22 percent of transactional volume, the industrial sector was the second most active asset class on the Montréal CRE landscape and is clearly the fastest growing area of investment. There is a current surge in demand to satisfy the need for large-scale, automated distribution centres. In many ways, industrial has become the new retail with 20 percent of industrial properties supporting e-commerce.
Net industrial rental rates in the past year have increased by approximately $1.00 per square foot per annum… Large spaces with high ceilings are the most difficult to find, as these command total rents between $12.50 to $15.00 per square foot. – Louis Hoppenheim, Broker of Record, Marcus & Millichap Montréal
Louis notes that municipal taxes and operating expenses have also increased, but the cost of living in Montréal is still relatively low. With strong demand and limitations on industrial space, the investment opportunities in this sector are expected to continue well into 2020.
The Montréal office market is in a stable position, with just over 17 percent of transactional volume for 2018. Institutional investors have been prudent in their acquisitions; there’s been no over-building, or over-leveraging. Central areas such as Downtown, Mile-Ex and Mile-End as well as the South Shore will benefit from infrastructure upgrades. Office availability fell from over 13 percent at the end of 2018 to just over 11 percent at the end of Q1 2019, indicating that the health and stability of this sector will likely continue in the coming months.
The lack of available land for industrial and commercial use on the island of Montréal is driving up prices. A general scarcity of vacant land for development dropped the number of land transactions in Montréal by 50 percent in 2018 from 2017. This shortage is forcing some larger companies to relocate to the outskirts of the city, where desirable commercial land can still be obtained at a reasonable price per square foot. As commercial land is limited by geography, upward pressure on prices is expected to continue into 2020.
The Montréal retail landscape is totally reinventing itself with market polarization and an emphasis on the experiential factor. Large department stores are becoming extinct, due in part to the growing number of online shopping options that are available. For existing shopping centres, food is the new anchor with popular restaurants, bistros and bars attracting millennials to enhance their shopping experience:
Carl Boutet, Montréal-based retail strategy consultant, said “I predict increased market polarization. The middle will be increasingly challenged while both luxury retail and value/discounters will continue to thrive. I’m also expecting the continued growth of the “long tail” of engaging urban indie shops,” he said. – retail-insider.com
Investment opportunities are still materializing and expected to do so into 2020. For example, the Holt Renfrew Ogilvy Centre will expand to 250,000 square feet next year with leased concessions from popular high-end brands such as Chanel, Fendi, Dior and Louis Vuitton.
Recent concerns over an escalating trade war with China have sprouted whispers of recession if the global economic situation doesn’t stabilize soon, which could impact inflation and exports. Potential barriers to immigration in Québec could also negatively impact the supply of labour driving economic growth. However, all things being equal, Thierry Lessoil is predicting an increase in Montréal CRE transactions up to 15 percent in the next few years, and Marcus & Millichap will be well-suited to take advantage of this uptick.
Montréal area investors and owners now have a major new commercial real estate brokerage agency to choose from. Our growing team of experienced specialists will guide you through the process of engineering optimal returns for your investment interests, or sale of your assets in a timely manner at a good price. Simply contact Marcus & Millichap Montréal and we’ll get working on your commercial real estate requirements right away!
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