Montreal Aims to Be One of North America’s Leading Life Sciences Markets

Montreal has a rich history of innovation in life sciences, from the publication of the first Atlas of Congenital Cardiac Disease, to the discovery of life-saving HIV anti-viral medications, and more recently the manufacturing of COVID-19 mRNA vaccines.

While Montreal is Canada’s most established commercial lab space market, the life sciences sector remains relatively underdeveloped compared to U.S. hubs like Boston or San Francisco. But Quebec has committed to investing hundreds of millions of dollars to help the province become a top five North American life sciences hub by 2027.

CBRE Montreal’s Jeremy Kenemy and Ralf Carcani are at the heart of the action, facilitating lab space transactions for life sciences companies.

“In 2021 there was nearly no lab space available in Montreal,” Kenemy says. “The pandemic highlighted the need for more life sciences facilities and some landlords answered the call. Many of these projects are now being delivered and providing much-needed supply.”

Kenemy and Carcani just published the inaugural CBRE Montreal Lab Market Report 2023. Here is a rundown of some of its key takeaways.

Building a Life Sciences Ecosystem

The Greater Montreal Area (GMA) has 5.6 million sq. ft. of lab space, half of which is distributed across five hubs: Technoparc Montreal, Nexus 40-13, Royalmount, the Laval Biotech City and the emerging Downtown hub. The life sciences market has an availability rate of just 6.5%.

Research and Development (R&D) companies take up most of the GMA’s life sciences inventory. These groups generally have smaller footprints, with most facilities having less than 25,000 sq. ft. of space. Many R&D companies start in incubators, accelerators, or academic research institutes, eventually graduating to larger spaces as they mature.

The remaining lab space in Montreal is dedicated to Good Manufacturing Practices (GMP) facilities, which manufacture and package drugs, medical devices and various pharmaceutical products.

Historically, most lab spaces were custom-built for specific tenants, but a few landlords including HarveyCorp and Alexandria Real Estate Equities have been converting flex office and light industrial buildings into speculative turnkey labs in anticipation of future demand. Recently JADCO launched Inspire Bio Innovations, a state-of-the-art lab campus near downtown.

Big Upfront Investment

Many landlords are interested in getting into the life sciences real estate market, Carcani says. “But converting buildings to accommodate lab space takes large upfront investments that are not congruent with every landlord’s business model.”

Lab facilities require specialized equipment such as supplemental HVAC, floor load and electricity, for example, so building out labs can come at a considerably higher cost than other types of real estate. And it can take years for companies to make discoveries or yield successful results, making it a riskier venture for landlords and investors compared with conventional office space.

“Landlords looking to make a foray into life sciences need a long-term vision,” says Carcani. “But once a company partners with a landlord, they are very ‘sticky’ and will likely renew their leases or expand within that landlord’s portfolio for a long time. It’s a winning strategy for those who are patient.”

Appealing Alternative

Montreal is appealing to lab space occupiers as it is the most affordable major life sciences market in North America. The average asking net rate for lab space in Montreal is $39.50 per sq. ft. per annum, a fraction of the net rents recorded in Toronto ($80.00 psf), Boston ($136.57 psf) and New York City ($149.60 psf).

Montreal also generates the highest number of university graduates in Canada, including 32,000 students currently enrolled in life sciences and health technology programs. This makes the city a prime source of talent for life sciences companies. And these graduates are often bilingual.

“European and French-speaking companies view Montreal as a gateway into the North American life sciences market,” says Kenemy. “Montreal’s bilingualism and culture brings a certain comfort level to foreign companies. It’s a competitive advantage for our city.”

North American Leader

Quebec’s goal of becoming a leading North American life sciences hub bodes well for the sector. The province has pledged $569 million to support $2 billion in direct investment in the industry.

“Most of Quebec’s life sciences activity takes place in the GMA, so our market will benefit from this influx of funding,” says Kenemy. “But to reach the government’s target, the province will need to incentivize landlords and developers to build labs in emerging hubs such as downtown Montreal.”

“Incubators and institutions play an important role in helping biotech startups take off,” Carcani adds. “The current economic climate makes venture capital money harder to come by, so the government will have to assist these groups to reach its target.

Looking Ahead

Although Montreal needs more high-quality lab space, the city has become an attractive market for both landlords and tenants. R&D companies are seeking 620,000 sq. ft. while GMP companies require 650,000 sq. ft. While the current demand exceeds the 180,000 sq. ft. of lab space available, over 900,000 sq. ft. of space are expected to be delivered within the next 24 months.

Despite some recent headwinds in this sector, the U.S. life sciences industry has recorded nearly ten times more products in phase 2 or 3 trials in 2023 than 25 years ago, suggesting continued long-term growth in this sector.

Montreal’s growing artificial intelligence (AI) industry could also play an important role in the future growth of the life sciences sector. AI technologies have the potential to revolutionize the drug discovery process by enabling the development of targeted therapies with precision medicine, reducing the time needed for pre-clinical and clinical testing phases.

“AI will allow companies to conduct more research and bring pharmaceuticals to the market quicker,” says Kenemy. “Montreal could become a leader in the convergence of AI and life sciences.”