For the First Time in 20 Years Montreal is Becoming ‘a Landlord’s Market’

– According to CBRE’s Avi Krispine, Montreal’s growing economy has created the best conditions for CRE Landlords in 20 years –

Montreal, QC – June 2, 2017 – A growing economy and a strong industrial sector have tipped the balance of power in Montreal’s commercial real estate (‘CRE’) market away from tenants towards landlords. According to Avi Krispine of CBRE, the world’s largest commercial real estate professional services firm, these improving economic fundamentals are about to turn Montreal’s industrial and office markets into “landlord’s markets,” for the first time in a generation.

“Much in the same way you would describe the housing market in terms of being a ‘buyers’ or ‘sellers’ market, the same rings true for commercial real estate as market conditions dictate the balance of power between business tenants and landlords. This shift is most prominent within the city’s industrial market, as for the last 20 years, Montreal’s 301.5 million sq. ft. industrial sector has firmly been a tenants’ market,” commented Krispine, Managing Director of CBRE Quebec.

One indicator of this shift within the industrial sector is the tightening of negotiations where the achieved rents are getting closer to asking rents. Historically, achieved rents and asking rents had a delta of approximately 25%, but that gap has narrowed down to 5-10%. In addition, availability in industrial properties are close to historic lows. At 6.8% as of Q1 2017, the industrial availability rate in Greater Montreal, the second largest Canadian industrial market after Toronto, was only 10 basis points away from its record low of 6.7% set in 2014.

Krispine noted that Montreal’s booming CRE sector was not limited to just the industrial market, but that strength and momentum was also gathering in the office sectors.

“In years past, high vacancy, and large amounts of office space available for sublease, meant that tenants often had multiple options to choose from and could accordingly negotiate hard on price. The accelerating growth in Montreal’s economy has shifted this dynamic and office space is being snapped up, tipping the balance in negotiations back towards landlords. Decreasing vacancy rates mean that firms looking for large pockets of space no longer have several locations to choose from. When you consider that the Montreal region added over 70,000 net jobs in 2016 alone, more than all other Canadian cities combined, it’s little wonder that space is becoming a hot commodity and the supply/demand dynamic has radically altered. However, let’s be clear, this is a good news story for the city and is a real sign of the vitality of the Montreal economy,” commented Krispine.

The office sector is a testament to the strength of the Montreal economy and indicates that the city’s local firms are in rude health. As evidence of Montreal’s CRE boom, Krispine pointed to the office market’s red-hot start to the year. In Q1 2017, there was 1 million sq. ft. of positive net absorption (the CRE industry’s measure of tenant demand) in the Greater Montreal area. This represents the best start to a calendar year for office demand in Montreal since the late 90’s and the largest overall quarter of tenant activity in the last 15 years. In particular, Krispine pointed to the plummeting amount of space available for sublease as a great indicator of the health of Montreal businesses, noting that the amount of sublease space was at a five-year low.

“The amount of sublease office space has fallen by 60 per cent in the Central Business District in a single year. When we see a large amount of sublease space available on the market, it means firms are cutting back and downsizing and then need to lease out the space they aren’t using. With the amount of sublease space shrinking so rapidly, it’s indicates that our companies are performing strongly and are confident in their ability to grow.

“We have an industrial market with near-record low availability and an office market that is showing very high demand. This all adds up to an extremely healthy commercial real estate market, and one that speaks highly positively for Montreal’s economic outlook. When you consider that there is more than $20 billion of infrastructure investments still to be delivered in the city, we expect our commercial real estate market to remain strong in the years to come. Collectively, this all points to a highly optimistic future for Montreal,” concluded Krispine.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

In Canada, CBRE Limited employs over 2,000 people in 21 locations from coast to coast. Please visit our website at www.cbre.ca.