Montoni Group of Montreal is building the two-phase, $6.4-million CentrOparc development in Mascouche that will cover nearly 1.6 million square feet. (Courtesy Montoni)

Montreal’s industrial market has hit new benchmarks, with record prices for transactions, and land on the island becoming a rare commodity, speakers said at the Montreal Real Estate Forum on April 17.

Prices are “day and night compared to a year ago,” said Stéphane Robillard, vice-president and practice lead, industrial services group at JLL. He noted a recent transaction in the West Island suburb of Pointe Claire was priced at more than $30 per square foot. “This is a new benchmark.” 

Two years ago, such a transaction would have been unheard of “and we don’t see where the wagon’s going to stop,” Robillard said.

On the development side, there is unprecedented investor interest. “It’s literally become an arms race with regards to land purchases,” said Sam Tsoumas, the director of business development at Montoni Group.

Robillard said land prices have doubled for some sites and clients have been forced to venture farther from Montreal, which increases their transportation and labour costs.

Large projects outside Montreal’s core

Because of a lack of land in Montreal, Costco built a 650,000-square-foot wholesale distribution centre in off-island Varennes. IKEA developed a 1.1-million-square-foot warehouse site in Beauharnois, also off the island, he said.

Since Montreal is an island, sprawl of industrial space has been limited, said Matt Virgini, vice-president, leasing at Triovest Realty Advisors. But “there’s not much land left on the island and if you’re going to sprawl, then the bridges come into the equation.” As a result, “land values on island are going to continue to surge.”

Virgini said because of the land shortage on the island, developers are looking to demolish existing outdated industrial structures and build anew.

“That’s exactly what we’re looking at,” Tsoumas said. Developers should look at sites with large parcels of land such as 500,000 to 600,000 square feet, he recommended: “All sites are being considered.”

Paul-Eric Poitras, managing partner at NAI Terramont Commercial, said given how tight the market is “there’s a race to find the right product. I listed a building in the South Shore and ended up with six offers and a bidding war on the asset,” he noted. “And, the guy who bought the asset is flipping it.”

Poitras said there is such a backlog of people in the market that if the right product comes along, there will be a bidding war.

Montreal industrial “a great story”

William Secnik, senior vice-president of investments at Fiera Properties, said Montreal’s industrial market has “been a great story.” However, it is hard to do deals as the assets are primarily privately held, much like the situation in Vancouver.

Poitras said deal sizes are getting bigger and 300,000-square-foot deals are becoming more commonplace.

A year ago, Montoni took possession of the former Sears distribution facility in Saint-Laurent and started to put out feelers.

“Within three months, we had agreements for 1.1 million square feet. The smallest one was just trending near 300,000 square feet,” Tsoumas said. Montoni has inked three occupants of 300,000 square feet at the site which “is unheard of in this city.”

Tsoumas said Montoni is building a 100,000-square-foot spec industrial building in Laval off Highway 13, which should be delivered in about a year.

It is also constructing the two-phase, $6.4-million CentrOparc development in Mascouche that will cover nearly 1.6 million square feet. The first phase in Mascouche is almost complete “and the demand’s been enormous,” Tsoumas said. “There’s never been a better time” to build on spec in the market.

“One of the drivers that have fuelled this market is the developers have been very disciplined over the past couple of years and there hasn’t been a lot of spec development,” Virgini said.

However, he believes that should change and several spec developments will soon be announced.

Pushback on rising leasing rates

Virgini said much of Montreal’s tenant base is entrepreneurial and is accustomed to rates that have been stable for the past couple of decades.

“All of a sudden, instead of asking for an extra quarter, you’re asking for an extra dollar. We’re definitely getting a bit more pushback from Montreal than other (more corporate) markets that might be a bit more receptive to that.”

He said statistics showing rental rates have increased by only 50 cents over the last 18 months don’t factor in a dramatic reduction in incentives, nor that creativity is no longer required to get deals done. 

Secnik said the industrial market still has room to grow. Robillard noted Montreal is “playing catch-up” and there will be massive investments in data centres during the next 18 months.

Virgini said the industrial market is starting to spill over from its epicentre in Saint-Laurent and “we’re bullish on Laval; we’re bullish on Vaudreuil because there’s just nothing left on island.”

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