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Industrial Construction Surge Continues in Montreal Suburbs
May 15, 2024 4 Minute Read
While industrial markets across Canada begin to cool, Montreal’s industrial market is in serious growth mode and its northern suburbs are leading the way.
Laval and the North Shore, which account for 20% of the Greater Montreal Area’s (GMA) total industrial inventory, have been two of its top-performing markets in recent years, CBRE’s Geoffrey Hughes noted during the Laval and North Shore Market Outlook. “We have seen strong interest from institutional players and expect this trend to continue in the future.”
Industrial development activity surged in the GMA in the midst of the pandemic, with more than 17 million sq. ft. of new industrial product added since 2020. Only 2 million sq. ft. of this space remains available for lease. An additional 4.5 million sq. ft. of industrial space is under construction across the GMA, whereas industrial construction has begun to slow in other Canadian cities.
Speculative development in particular has been a big driver of Montreal’s industrial market. CBRE is tracking eight spec developments across Laval and the North Shore slated for delivery in the next 18 months. The total square footage of these projects, 2.8 million sq. ft., represents 40% of the GMA’s industrial spec pipeline.
“Industrial developers are taking advantage of lower land costs and the popularity of certain emerging markets,” said Hughes. “Only one of the 20 projects we track is happening on the Island of Montreal.”
Here are three more things we learned at the CBRE Laval and North Shore Market Outlook.
Availability Will Stabilize
The GMA’s industrial availability rate was 3.5% in Q1, having steadily increased every quarter since its record-low of 0.9% at the end of 2021. Availability should continue to increase as industrial projects are delivered in the coming quarters and demand for warehouse space is tempered by high interest rates, lack of market confidence, and slower consumer spending.
“The GMA industrial market is still recalibrating,” CBRE’s James Cacchione told the Market Outlook. “The current availability rate is already higher than it was in the three quarters leading up to the pandemic, meaning that the market has already fully recovered and is ready to return to normal.” Cacchione said he expects the GMA’s availability rate to stabilize at 6.0%, slightly lower than its pre-pandemic average of 7.3%.
Rents Will Contract
Following 15 consecutive quarters of industrial rental growth amid low availability rates, Q3 2023 marked the first of three consecutive quarters of decreasing net rents in the GMA. This brought average asking net rents to $16.03 psf in Q1 2024, making Montreal Canada’s third most expensive major industrial market after Toronto and Vancouver.
Strong demand for industrial product has pushed rents even higher in the burbs. Laval’s average asking net rent was $18.19 psf and the North Shore is $17.16 psf. Though Cacchione said, “increased availability and delivery of new product is beginning to put downward pressure on net rents.”
With property taxes set to increase on industrial properties across the GMA, Hughes said landlords will have to get creative to retain as much of the asking face rate as possible, including longer fixturing periods and larger tenant incentive packages.
Sales Will Outperform
Industrial sales are booming in the GMA, with 113 transactions recorded across Laval and the North Shore in 2023, up from 95 in 2022. Average sale prices per square foot have also increased in both markets; Laval is up 31% and the North Shore is up 20%. Acquisitions of properties under 25,000 sq. ft. dominated the activity last year.
“We anticipate the acquisition market to be the best-performing sector of the industrial market for the next while,” said Cacchione. “Many users prefer owning their real estate and see it as an investment. That, coupled with the interest rates, which are likely to begin coming down later this year, will increase buying power and help to keep demand and pricing strong.”
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