Montreal commercial real estate market update – Q3 2024

The Montreal market observed transaction volume increase by 31% year-over-year, with a considerable increase in activity observed in the retail sector

Despite concerns surrounding Canada’s sluggish economic growth and labour market conditions, several major markets have begun to see an uptick in transaction activity following a prolonged period of investor hesitancy due to elevated interest rates. The Montreal market has observed an increase in activity, with $7.4 billion in dollar volume transacted as of Q3 2024 YTD, up 31% compared to the same period last year. According to Altus Group’s latest Canadian Investment Trends Survey, Montreal and suburban multiple-unit residential ranked second in the top preferred market and product combination amongst investors. The multi-family sector generated the largest share of the total investment volume at 37%, while the retail sector recorded the highest year-over-year (YoY) growth at 78%.

Figure 1 - Property transactions – All sectors by year

The multi-family sector posted $2.8 billion in dollar volume transacted, a 39% increase YoY. With rapid population growth and a lack of affordable housing in constrained market conditions, demand has begun to outpace supply in the Montreal rental market. While the Bank of Canada’s interest rate cuts did spur an uptick in transaction activity, further cuts are required to ease elevated financing and construction costs, which continued to be barriers to housing starts. As single-family housing starts remained below the historical average, Montreal’s new housing strategy (dubbed the 2050 Land Use and Mobility Plan) aims to increase the city’s housing supply through densification, specifically around strategic areas with public transit.

The retail sector posted $1.3 billion in dollar volume transacted, a 78% increase YoY. As Canadians continued to be mindful of their budgets, with spending focused on essential goods and services, investors have favoured shopping centres and retail strips containing grocery and general merchandise anchors. The much-anticipated opening of Royalmount, a luxury shopping centre owned by Carbonleo, was unveiled on September 5th. Once completed, the shopping centre will be home to the highest concentration of luxury flagship stores in the province and will introduce several new brands to Quebec.

The industrial sector reported $2 billion in dollar volume transacted, a 36% increase YoY. According to Altus Group’s most recent Canadian industrial market update, Montreal’s industrial availability rate observed a 320-basis point increase YoY to 7.8%, the highest availability rate observed since Q4 2017, and its 5th consecutive quarter of negative absorption. The market recorded 908,000 million square feet of new completions, with a 100% availability rate. In addition, the market has 2.1 million square feet under construction, with over 70% available as pre-leasing activity has pulled back in response to softening conditions.

Transaction activity in the office sector continued on a downward trajectory, with just $317 million in dollar volume transacted, a 36% decrease YoY. Altus Group’s most recent Canadian office market update revealed that Montreal’s office availability rate flattened at 18.%. Furthermore, no new office buildings were observed in the third quarter, and two office buildings (totalling 121,392 square feet) are under construction as of Q3 2024, with 32.3% of the space available. Like other major Canadian markets, the preference for Class-A office buildings continued in the flight-to-quality trend.

Residential and ICI land sales recorded a total of $934 million in dollar volume transacted, a 6% increase YoY. Residential land posted $366 million, while ICI land posted $568 million, a 38% increase and a 7% decrease YoY, respectively. Renewed interest in residential land investment was observed in the second quarter after several quarters of stagnation carried into the third quarter, while demand for ICI land diminished with rising availability rates in the industrial sector.

Figure 2 - Property transactions by asset class YTD (Q3 2023 vs. Q3 2024)

Notable Q3 2024 transactions

CF Carrefour Laval, Laval - Retail

The 50% interest sale of one of the largest and premier shopping centres in Greater Montreal concluded in late August 2024. With a sale price of $553 million, the transaction saw Cadillac Fairview re-acquire the stake, which they had previously sold to TD Asset Management. With full ownership restored, Cadillac Fairview announced plans for a transformative master plan development aimed at creating a fully integrated community hub with thousands of residential units. The first phase will include a residential rental project with 365 units across two towers, 20 and 11 storeys, connected by a six-story podium.

Canvar Group – Fitzrovia Portfolio, Montreal – Apartment

With a purchase price of $102 million, Fitzrovia acquired a two-property multi-family portfolio from Canvar Group. Comprising of 2100-2120 De Bleury, otherwise known as Le Smith and 375 de la Concorde Street (C-Lofts), located just around the corner from Le Smith. Both apartment buildings contain 317 residential units and are ideally located seconds from Montreal’s Quartier des Spectacles. These two acquisitions add to Fitzrovia’s Montreal portfolio, which includes properties like Stanbrooke, a residential tower recently purchased last December for just under $70 million with almost 180 units. These recent acquisitions further highlight Fitzrovia's growing presence in Greater Montreal.

4436-4450 Saint-Laurent Boulevard, Montreal - Office

Located in Montreal’s renowned Le Plateau-Mont-Royal borough, 4436-4450 Saint-Laurent Boulevard closed with a sale price of nearly $18.8 million. The 10-storey office building, which dates back to 1915, was acquired by MTRPL from Allied Properties REIT. The purchaser’s portfolio has been impressively expanding since its inception in 2016 as they focus on “retail-centric mixed-use urban development”. The building offers ground-floor retail space with office space above and is ideally situated on Montreal’s main street, close to Mont-Royal Park to the west and the Mont-Royal metro station to the east.

Figure 3 - OCR trends across four benchmark asset classes

Conclusion

Despite the dampened economy, Montreal recorded a boost in investment volume by the end of the third quarter for most sectors. While the surge in investment volume recorded in the second quarter was partly driven by property tax and capital gains tax increases, lower interest rates have renewed interest in the market in the third quarter, with the multi-family, industrial, and retail sectors contributing to a large portion of this growth. Looking ahead, it can be anticipated that further interest rate cuts will likely result in a surge of investor confidence in 2025.

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