The Montreal real estate market looks to remain steady in 2013 and to have a solid on-base average, forecasts Brett Miller, president of the Canadian operations of Jones Lang LaSalle.
“You may not hit it out of the park (in Montreal), but you’re going to continue hitting singles, and that makes it an attractive investment,” he says.
Demand in the city for either office, industrial or retail space is solid and the total amount of occupied space is growing, which is reducing vacancies to low levels and giving developers opportunities to build new buildings.
Montreal's first new office towers since the 1990s
According to Jones Lang LaSalle’s latest report Look Forward – Montreal, Montreal is gearing up for its most substantial building cycle since 2002-2004 with three confirmed and five forecast new developments totaling 2.5 million square feet. The current wave of new construction is the first privately funded development boom since the early 1990s, the report notes.
Confirmed projects include Cadillac Fairview’s 26-storey Deloitte Tower with 514,000 square feet of office space near the Bell Centre. and the Aimia Tower (image to the left) with 236,438 square feet of office space near Square Victoria.
With the eight proposed buildings expected to be added through 2016, the vacancy rate is likely to peak at 10% in 2016 (compared to the current rate of 5.4%) before dropping to 9.3% in 2017, the Look Forward report forecasts.
“This is an exciting time for the development industry in Montreal,” Miller says. However, he notes that while the Montreal market is very stable, demand is more modest compared to other large Canadian cities.
“I sense that in other markets like Calgary, there may be a bit of over-euphoria – so that the market can easily get overbuilt. That won’t be the case in Montreal. Builders are pre-leasing to high levels and the market really needs the space.”
Suburbs like Laval and the South Shore have also become “legitimate markets,” with construction rising due to solid local demand and not because tenants are looking to migrate from downtown Montreal.
Retail sector requires little new construction
On the retail side, there is little new construction, but malls and strip centres are full and revenue per square foot is high, Miller says. “Quebecers are still spending money and the results are positive, but there’s probably no real need for any major retail centres.”
He notes that caution is needed in the industrial sector, which is becoming more centred on distribution than manufacturing. As well, there is some softness in some of the older industrial inventory, which are harder to lease because of low ceiling heights and poor shipping facilities in many of these buildings.
Still, there are some bright hopes, notably in the aerospace sector, with Bombardier’s C Series aircraft program gobbling up space in Mirabel and the West Island.
Condo market is sustainable
Despite the large number of condominium towers under construction in the city, the condo market remains sustainable, given current levels of household formation and immigration and the lack of new rental housing, Miller says. “It seems really dramatic when you see these towers go up, but don’t forget there’s a big scale back in single family housing construction in the suburbs.”
Major condominium projects are selling well and are backed by “very sophisticated” developers. As well, banks are being extremely conservative with their lending practices by requiring that 60% of condos have to be pre-sold before a shovel can go into the ground. Developers typically have an 18 to 36 month delivery cycle to sell the remaining units, which should be sufficient, he says.
Still, Miller warns that Montreal is not Vancouver and condominium prices have to remain at a reasonable level or demand will disappear.
Montreal market is locally driven
He adds that last September’s election of a minority Parti Québécois government has not had any effect on the Montreal market. “The fact it’s a minority government put a certain counterbalance to what the government can do so, so that’s somewhat reassuring.”
While there was tapping of the brakes during the election period, companies are still showing interest in investment offerings. For example, Standard Life’s 1600 René-Lévesque Blvd. W. property was on the market during the election campaign and “it was a well-bid asset with lot of demand.”
In any event, even if the political issue is discussed frequently in business circles, “the market is really driven by local demand as opposed to new investment, which is fairly soft.”
Miller notes Jones Lang LaSalle’s Montreal office is also growing, with a 25% increase in the last six months. One of those new hires was Scott Speirs, who recently came on board as vice-president in the firm’s national investment practice. The Montreal office now has about 25 employees and that number should increase to about 35 by the end of 2013, Miller says.