Montreal Outlook 2024

Montreal’s office market has had a turbulent ride as it grapples with the enduring popularity of remote work and strong resistance to long commute times.

The city’s downtown office market ended 2023 at 18.0% vacancy, up 2.0% from a year earlier. The suburban office market fared slightly better, with vacancy dropping to 17.6% in the final quarter, driven by the Laval and South Shore submarkets.

Montreal’s industrial market witnessed the delivery of 3.3 million sq. ft. of new supply in 2023, pushing the availability rate to 3.0% in Q4, up from 1.2% a year earlier. The supply keeps coming, with 2.54 million square feet of industrial space under construction.

Where is Montreal’s real estate market headed in 2024? CBRE Quebec Managing Director Ruth Fischer tells us what she’s watching for.

Office

From an occupier’s perspective it’s still a tale of two markets. In an attempt to “earn the commute,” occupiers are looking for high quality built-out space in key locations for their employees. This doesn’t necessarily mean downtown. But commute times remain an important hurdle when it comes to returning to pre-pandemic normalcy.

National Bank’s headquarters is opening this year, which will have a notable impact on the downtown core market as many of their business units will consolidate into their HQ. It will be an interesting time, but I do think there will be opportunities for those landlords to make investments to provide a differentiated experience. That means the amenitzation and hotelization of office spaces as people are demanding more from their offices.

If you segment the market, lower quality office space in Montreal is close to the vacancy rates seen in Calgary. High quality buildings are seeing lots of leasing activity, while less-amenitized buildings are more challenged to appeal to occupiers.

As far as office to residential conversions go, Montreal has seen a few of these come to fruition, including one that FTQ and Lachance completed on Nuns’ Island. There are a few more planned, including on the former Standard Life tower on Sherbrooke Street. I just struggle to believe that without substantial government support there will be many examples where the conversations pencil out.

The other question that remains to be seen in 2024 and beyond is how much ESG can be used as a lever to repurpose older/end-of-life buildings rather than constructing from scratch.

Industrial

After breakneck absorption of industrial space, remarkable rental growth, and a significant drop in vacancy rates, we’ve seen those indicators reverse tack over the last few months. Rental growth has stopped and we’ve even seen a slight downward correction at the top end of rents where there may have been aspirational rates.

But to me the interesting area to watch is the big box space. There was a ton of big box construction and pre-leasing during the pandemic by third party logistics (3PL) companies and larger users. But at this moment we’re observing Montreal developers finally delivering new product to the market at the same time as some of these 3PLs and big box users are shedding space they leased during the Covid “just in case” days. Sub-leasing is on the rise and the amount of space available in that large bay segment is rising substantially.

Small and mid-bay industrial is still performing really well. I suspect we will see some those big bombers and the large bay industrial buildings creatively adapt to capture the mid-bay market.

Multifamily

While interest rates remain elevated, Canada Mortgage and Housing Corp. (CMHC) continues to be a key liquidity provider to multifamily construction development. In an effort to relieve increasing pressure from the rise in interest rates, in addition to elevated construction labour and material costs, mortgage solutions such as CMHC’s MLI Select program continue to provide considerable support to developers and their commitments to delivering new housing stock across Canada. To help our clients understand construction financing alternatives and creative structured mortgage products, CBRE bolstered the team in 2023, adding a dynamic and create Debt and Structured Financing team who are happy to help.

Driven by the recent Bill-96 announcement, the Quebec student housing market may also face challenges from concerns about associated local and international demand where the new language law requirements may be perceived as a barrier to a world-class educational system. The knock-on implications have yet to be seen but will be watched closely as they impact the broader economy.

Retail

Grocery-anchored retail in Quebec has been the most popular and highest-value asset class in recent years. We have also seen high street retail coming back, particularly in denser areas. And the food and beverage segment is seeing lots of cool new things happening in Montreal, which is not surprising; this market has always been cutting edge. 

Looking at the Sainte-Catherine Street West revitalization, the segments that have been completed are beautiful, creating a nice pedestrian environment. The REM (Réseau express métropolitain) will also be a game-changer; I don’t think we’ve fully felt the effect of that on office and retail activity except for the terminus of the REM at Brossard. Properties there, including Dix30 and Solar, are trading exceptionally well from both office leasing and retail leasing perspectives.

Royalmount will be the big retail project to watch; the first phase is slated to open later in 2024. (At a cost of $1 billion, Phase 1 will have more than 170 businesses, including 60 eateries and cafes, in a 824,000-square-foot, two-level retail and lifestyle complex.) They’ve scaled down some of the project from the initial concept but I am keen to see how it impacts footfall in the traditional retail areas.

Life Sciences

Life sciences is a sector on fire in Montreal. There’s huge connectivity between the Montreal universities, the life sciences and AI sectors. We’re finally getting some of that life sciences real estate supply online, which is super exciting as the pent up demand has had a dampening effect on the growth of this specialization.

It’s just one of the many reasons to keep a close eye on Montreal’s real estate market this year.