Montreal commercial real estate market update – Q1 2024

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Commercial investment activity in the Montreal market continued to slow due to persistent pressures from elevated interest rates

Montreal saw $1.3 billion in dollar volume transacted in Q1 2024, a 20% decline compared to 2023. All sectors reported a pullback in transaction activity except for ICI land. Furthermore, according to Altus Group’s most recent Canadian CRE Investment Trends Survey, Montreal’s preferred products include single and multi-tenant industrial.

Figure 1 - Montreal property transactions – All sectors by year

The multi-family sector posted $445 million in dollar volume transacted in Q1 2024, a 10% decrease year-over-year (YoY). Population growth, elevated interest rates and the high cost of living continued to be disruptive factors in the Montreal housing market, as growing demand for rental housing and lack of construction starts only served to tighten market conditions and exacerbate housing affordability challenges. At the same time, investment volume in the multi-family sector is expected to soften in 2024 due to elevated interest rates.

The industrial sector reported $416 million in dollar volume transacted, a 12% decrease YoY. Altus Group’s most recent Canadian industrial market update revealed a 2.1 percentage point increase YoY in Montreal's industrial availability rate to 6.0%. Montreal recorded 1.6 million square feet of new completions, with nearly half of the space pre-leased. In addition, the market has added to 3.1 million square feet to the under-construction pipeline, with 84% of the space available to be leased as pre-leasing activity has pulled back slightly as market conditions moderate.

The residential and ICI land sales recorded a total of $227 million in dollar volume transacted, a 10% decrease YoY. Residential land posted $53 million in transactions, while the ICI land posted $174 million, a 37% decrease and a 42% increase YoY, respectively. While the Montreal market has historically favoured residential land, the relentless demand for industrial space has increased ICI land sales despite surging land costs.

Deal velocity in the office sector continued to slow, with $55 million in dollar volume transacted, a 61% decrease YoY. According to Altus Group’s most recent Canadian office market update, Montreal’s office availability rate flattened at 18.1%. Furthermore, no new office completions were recorded in Q1 2024, and five office buildings totaling 315,107 are under construction, with nearly half of the space pre-leased. The preference for Class-A office buildings continued to trend in the first quarter of 2024, as tenants sought to upgrade into high-quality amenitized spaces.

The retail sector reported $146 million in dollar volume transacted, a 39% decrease YoY. As Canadians concentrate spending on essential goods and services, leasing activity has shifted towards food-anchored retail strips. To this effect, food-anchored retail continued to rank first as the top preferred property type by investors in Altus Group’s most recent Canadian CRE Investment Trends Survey. Furthermore, investors continued to be strategic with their assets, eyeing retail sites for redevelopment or intensification opportunities.

Figure 2 - Montreal property transactions by asset class (Q1 2023 vs. Q1 2024)

Notable Q1 2024 transactions

5755-5775 Sir-Walter-Scott Avenue, Côte-Saint-Luc - Apartment

In mid-February, InterRent REIT and their partners CLV Group offloaded Parc Kildare Apartments to Immeubles Galleon for $46 million. Built in 1970 and located in the borough of Côte-Saint-Luc, this property features 223 units over five buildings. Its proximity to services and schools such as Concordia University’s Loyola Campus make this property an attractive asset for the purchaser, Immeubles Galleon S.E.C. Amenities at the property include an outdoor pool, laundry room, and the availability of both indoor and outdoor parking on site.

5360-5370 MacDonald Avenue, Côte-Saint-Luc - Apartment

Another large multifamily transaction in Q1 2024 saw 5360-5370 Macdonald close for over $22 million. At the end of January, the Mercer Group sold these two connected properties featuring over 100 units to a private investor. The vendor has another property on the same street that was not included in this sale. Built in 1957, this transaction represents a price per unit of $223,958. 

4005-4105 Matte Boulevard, Brossard – Industrial

At a price per square foot of $197, Biron purchased their headquarters and one of their facilities for $28,000,000. With over 140,000 square feet of flex space, this multi-tenant property was built in 2001. The Biron facility features a medical laboratory, sampling and nursing care at their Brossard facility which is one of their over 120 service centres around the province of Québec.

Gestion Jacad - Vista Properties Industrial Portfolio, Anjou – Industrial

This industrial portfolio was one of the largest transactions of the quarter with a closing price of $74,705,000. It features a gross leasable area of 437,214 square feet spanning over twelve buildings for an aggregate price per square foot of $200. This represents an important transaction for the borough of Anjou and the east end of Montréal’s current and future revitalization. Both the private and public sectors have made significant investments in the east end with the government of Québec recently announced a $23 million investment in this area of the city. This acquisition by Vista adds to its growing portfolio in the east end, which includes properties in Anjou and neighbouring Saint-Léonard.

4555 Ambroise-Lafortune Street, Boisbriand - Industrial

In the highly sought-after North Shore industrial park, 4555 Ambroise-Lafortune Street traded for $11.5 million in early February. This advanced manufacturing facility built in 2009 and spanning over 52,000 square was made for the current occupier Kontron. With this acquisition, the purchaser Immo 1ère expands into the area of Boisbriand with the majority of their existing commercial portfolio located in the Québec City region.

Figure 3 - OCR trends across 4 benchmark asset classes

Conclusion

The Montreal market softened in the first quarter of 2024 as persistent pressures from elevated interest rates slowed economic growth. Investors have continued to favour stable, low-risk areas of real estate, such as multi-family and industrial, which accounted for 34% and 32% of the total dollar volume in Q1 2024, respectively. As interest rates have likely peaked, the anticipated rate cut has triggered a gradual rebound in activity as some investors vie to get a head start on the competition amidst tightening market conditions.