Montreal commercial real estate market update – Q2 2024

As of the first half of 2024, Montreal’s transaction volume increased by 32% compared to the same period last year

The Montreal market reported $4.9 billion in dollar volume transacted as of Q2 2024 YTD, a 32% increase compared to the same period in the previous year. Despite significantly raising property taxes between 2.6% to 7.2% depending on the borough (combined with the federal capital gains tax increase from 50% to 66.7% on capital gains exceeding $250,000), Montreal has seen the highest transaction volume since Q1 2022. The region also recorded a record number of transactions, with the multi-family and industrial asset classes generating the highest percentage of the total investment volume at 39% and 31%, respectively.

Figure 1 - Property transactions – All sectors by year

The multi-family sector posted $1.9 billion in dollar volume transacted, a 53% increase year-over-year (YoY), as the Montreal housing market continued to tighten due to strong population growth and increased rental demand. While it is too early to say the BoC’s decision to cut its overnight interest rate to 4.75% on June 5th has contributed to any material impact, the anticipation of further interest rate cuts will likely encourage investment activity as some investors seek to position their portfolios ahead of the inevitable pickup in the market. Furthermore, according to the Canadian Mortgage and Housing Corporation (CMHC), the number of starts for multi-unit housing increased by 87% in June 2024 compared to June 2023, a primary driver for Montreal’s 226% increase in housing starts observed in June 2024.

The industrial sector reported $1.5 billion in dollar volume transacted, a 58% increase YoY. According to Altus Group’s most recent Canadian industrial market update, Montreal's industrial availability rate observed a 280-basis point increase YoY to 7.3%, the highest availability rate observed since Q2 2017, and its third consecutive quarter of negative absorption. Montreal also recorded 1.6 million square feet of new completions, with over half of the space pre-leased. In addition, the market has three million square feet under construction, with 80% of the space available as pre-leasing activity has pulled back in response to easing conditions.

Residential and ICI land sales recorded a total of $719 million in dollar volume transacted, a 28% increase YoY. Residential land posted $225 million, while the ICI land posted $494 million, a 44% and a 22% increase YoY, respectively. A renewed interest in residential land investment was observed in the second quarter after several quarters of stagnation, as pressures in the rental market from increased migration and affordability challenges have contributed to tightened market conditions.

Montreal’s office market has continued to slow, with just $158 million in dollar volume transacted, a 59% decrease YoY. Altus Group’s most recent Canadian office market update revealed that Montreal’s office availability rate flattened at 18.4%. Furthermore, only two new office buildings (totaling 135,200 square feet) were completed in Q2 2024, with a third of the space pre-leased. Finally, three office buildings (totaling 179,907 square feet) are under construction as of Q2 2024, with 42% of the space available. Similar to other major Canadian markets, the preference for Class-A office buildings continued in a “flight-to-quality.”

The retail sector reported $561 million in dollar volume transacted, a 12% increase YoY. A prolonged inflationary period has led Canadians to tighten their discretionary budgets, and as spending became prioritized on essential goods and services, food-anchored retail strips became a popular asset class amongst investors. There is still optimism on the horizon, with the anticipated opening of Royalmount, a luxury shopping centre owned by Carbonleo. In addition, downtown densification efforts around transit hubs, such as the Métro or future Réseau Express Métropolitain (REM) stations are expected to open up promising opportunities for retail stakeholders.

Figure 2 - Property transactions by asset class (Q2 2023 vs. Q2 2024)

Notable Q2 2024 transactions

1430-1434 Sainte-Catherine Street West, Montreal – Office

One of the highest-priced office transactions for Q2 2024 concluded in June. Having been sold for $11.2 million, this office building on Sainte-Catherine Street West in Montreal’s downtown borough of Ville-Marie totaled 43,606 square feet. For several years, this building’s ground floor has been home to the SPVM’s (Montreal’s Police Force) Station 20. Avison Young, who represented the vendor in this transaction, stated that the office building is eventually intended to be repurposed for student housing. This location is desirable since it is near Concordia University and Dawson College, two famous Montreal academic institutions.

9 de la Seigneurie Boulevard East, Blainville – Retail

The sale of 9 de la Seigneurie Boulevard East in Montreal’s North Shore town of Blainville concluded in early Q2 2024. The roughly 80,000 square foot building sold for a total of $20.7 million and resulted in a price per square foot of $259. Located just east of du Curé-Labelle Boulevard (Route 117), the neighbourhood shopping centre, also known as Carrefour de la Seigneurie, is an important retail centre of Blainville and is home to various retailers ranging from grocery to retail banking, among others. Big names include IGA, Laurentian Bank, Dollarama, and Telus.

1000 Paul-Kane Place, Laval – Industrial

The second-highest industrial deal of Q2 2024 (in dollar amount) concluded in Laval’s borough of Saint-Vincent-de-Paul in early June. Groupe Mach acquired 1000 Paul-Kane Place for an astounding $67.5 million and with roughly 280,000 square feet, this represents a price per square foot of $240. The transaction is part of a portfolio of three industrial buildings in the Greater Montreal Area. The portfolio totals approximately 665,000 square feet resulting in an aggregate price per square foot of $205. 1000 Paul-Kane Place is in eastern Laval just south of Jean-Noel-Lavoie Highway (A-440) and about 2km from Highway A-25.

2700 Rufus-Rockhead Street, Montreal – Apartment

2700 Rufus-Rockhead Street, also known as Les Jardins du Canal, is in Montreal’s Le-Sud-Ouest borough, just east of the famous Atwater Market and north of the Lachine Canal. Akelius acquired the asset for just over $93 million and its 193 apartments represent a price per unit of $484,776. This is the largest apartment deal recorded for Q2 2024 in the Montreal marketand the seventh highest since 2020. This well-located property, recently built in 2003, sits just south of Highway 136 (formally known as the Ville-Marie Expressway) and is within walking distance from Lionel-Groulx Metro Station, allowing for easy access across the city.

De la Pinière Boulevard West, Terrebonne – ICI Land

Montreal’s North Shore municipality of Terrebonne saw the highest-selling ICI Land transaction of Q2 2024 and the third highest of the past 12 months. With an incredible price tag of $113 million, the price per acre sits at just over $2 million for its 56 acres. Rosefellow, the vendor, had originally acquired the plot of land between late 2023 and early 2024 from Le Versant Golf Course but sold it to Sobey’s shortly after. The purchaser intends to expand its current warehousing/distribution site, which is currently situated next door. The site is ideally located on de la Pinière Boulevard West, immediately south of Highway 640 (A-640), providing easy access to neighbouring municipalities, such as Laval and Montreal to the south.

Figure 3 - OCR trends across 4 benchmark asset classes

Conclusion

While the surge in investment volume in the Montreal market was partly driven by the property tax and capital gains tax increases, activity in the market has been on a gradual rebound, although not equally across the sectors. While multi-family and industrial contributed to the lion’s share of Montreal’s investment volume, Altus Group’s latest update on Canadian commercial real estate investment trends highlighted food-anchored retail trips as Montreal’s preferred property type by investors, which have contributed to recovering investment activity in the second quarter.

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