Montreal’s commercial real estate market experienced a record year for investment sales in 2021 and optimism is high for 2022.
There were 1,799 CRE transactions valued at more than $1 million in the city last year, resulting in $9.92 billion in transaction volume, according to CBRE.
Those numbers compare to 1,439 transactions valued at $6.12 billion in 2020 and 1,279 valued at $8.18 billion in 2019.
Quebec enjoyed the lowest unemployment rate and strongest gross domestic product growth in the country. Scott Speirs, CBRE’s executive vice-president and practice lead for Montreal’s national investment team, said that has helped increase investment interest.
Range of investors interested in Montreal
Private Canadian investors were by far the most active, followed by: developers; REITs and REOCs; foreign investors; institutions; public investors; users; and governments.
“All of the usual types of investors were very active,” Speirs told RENX. “Some were increasing their allocations to Montreal. Some were first-time investors. Some had left the market at a certain point and now are starting to come back.
“There really is a change in sentiment for this market. It was a change that had already started pre-pandemic, but that sentiment has improved even as we’ve gone through the pandemic.”
Institutional investors from Toronto and Vancouver are increasing their Montreal allocations, particularly for industrial properties.
“There are a lot of positives from an economic perspective and, parallel to that, you’ve got a market that’s still significantly less expensive than Toronto and Vancouver.”
Foreign investors haven’t been particularly active in Montreal for the past two years, somewhat owing to COVID-19 travel restrictions. That has built pent-up demand that should result in more foreign capital entering the market this year, according to Speirs.
Multiresidential and industrial
There was $3.66 billion in multiresidential property transactions in 2021, making it the most active asset class, which shouldn’t come as a surprise since it usually leads the Montreal market.
“There’s still very strong interest for multifamily and we’re expecting a significant amount of volume to come to the market, particularly in Q1 and the first half of the year, with investors and owners being mindful of the risk of interest rates rising and the impact that will have on the pricing of their assets,” said Speirs.
It was a record year for industrial property investment, according to Speirs, with transaction volume of $2.22 billion. There were also $500 million in industrial land sales and demand remains strong for future speculative development projects.
“Industrial is all about the strength of the occupier market and Montreal’s performance in 2021 was truly remarkable,” said Speirs. “Montreal had the strongest rental growth of any major Canadian city with 32 per cent rental growth.
“That’s very strong rental growth by any measure in any market in the world. That’s driving significant demand from investors to find opportunities in this market.
“One trend that became clear as the year progressed was institutional investors who in the past only looked at class-A new product really opened their horizons to acquiring class-B and even class-C industrial. They’re recognizing the performance of even lesser-quality or older assets.”
Office, residential land and retail
There were $1.51 billion in office property transactions despite uncertainty about the asset class since the onset of the pandemic.
Speirs said investors are taking a long-term view of the office sector and quality, well-located buildings with long-term leases and good covenants in both urban and suburban areas are still coveted and selling for high prices.
There was $1.15 billion in residential land sales. Speirs said there are virtually no unencumbered sites left in downtown Montreal, but there’s been steady activity in property assemblies as well as repurposing or redeveloping existing properties.
Developers are being cautious, however, due to rising construction costs and expected interest-rate increases.
Speirs said the suburban residential land market remains robust since sites cost less, buildable pricing is lower and there are no additional taxes to pay for social housing as there are downtown.
“The economics make sense for rental, which is becoming increasingly attractive for developers,” he said about suburban land.
There were $885 million in retail property sales. Speirs described it as a quieter year but said momentum started to build in the asset class in the second half. Institutional investors are targeting necessity-based retail properties.
“Necessity-based retail demonstrated its resiliency through the pandemic and often the yield is better on that type of product, particularly when you compare it to multifamily and industrial. We expect a significant increase in trading volumes for retail going into this year.”
Forecast for 2022
Speirs expects another record year for Montreal investment sales in 2022. He believes all asset classes should perform well, led by multiresidential and industrial.
“Our sense going into 2022 is that momentum and demand for industrial is further accelerating, from both occupiers and investors. We expect very strong price increases, both from a leasing perspective and also from an investment perspective, as the year progresses.
“Montreal also has one of the most limited supplies of new pipeline of any of the major markets in North America despite having one of the lowest vacancy rates. Because of that lack of supply, it’s going to have a compounding effect on demand and pricing.”
Top-10 Montreal transactions for 2021
Below are Montreal’s 10 biggest commercial real estate transactions of 2021, according to CBRE.
1. The 51-storey, 964,189-square-foot 1000 De La Gauchetière office and retail complex in Montreal’s central business district (CBD) was acquired by Groupe Petra and Groupe Mach from Ivanhoé Cambridge for $482.09 million on July 12. The property is 85.8 per cent leased to a variety of tenants.
2. LaSalle Investment Management Canada acquired Ivanhoé Cambridge’s 50 per cent stake in the class-AAA, 27-storey, 484,505-square-foot Maison Manuvie office tower at 900 de Maisonneuve Blvd. W. for $328.01 million on Sept. 9. The construction of Maison Manuvie in the city’s downtown core was completed in 2017. Manulife has its Quebec headquarters in the building and owns the other 50 per cent stake.
3. Allied Properties REIT acquired the 268,386-square-foot office component of Jesta Group’s Place Gare Viger, a historic former railway station and hotel at 755 Berri St. in Ville-Marie, for $250 million on Jan. 9. Speirs said the purchase set a Montreal price-per-square-foot record. Jesta Group still owns the apartment, retail and hotel elements of the complex.
4. Cadillac Fairview became sole owner of the 1.31-million-square-foot CF Fairview Pointe-Claire shopping centre, at 6801 Trans-Canada Highway in Pointe-Claire, when it acquired the 50 per cent share formerly owned by Ivanhoé Cambridge for $245.5 million on May 19. The mall has more than 200 stores and restaurants. There’s potential for future residential and commercial development and the property will have access to the 67-kilometre, 26-station Réseau express métropolitain light rail network that’s under construction.
5. Ivanhoé Cambridge became sole owner of the 1.41-million-square-foot Galeries d’Anjou shopping centre, at 7999 des Galeries d’Anjou Blvd. in Anjou, when it acquired the 50 per cent stake formerly owned by Cadillac Fairview for $232 million on May 19. The mall features more than 160 stores, restaurants and entertainment facilities.
6. A portfolio of eight multiresidential properties across Greater Montreal, for $224 million, sold by U.S.-based Raamco to Banvest Inc. This was part of a larger portfolio sale involving a total of 10 properties that closed in two tranches (the first tranche in 2020). In all, Banvest acquired 70 buildings with 2,242 apartment units in the 10 locations for $300 million.
7. The 34-storey, 516,724-square-foot, class-A KPMG Tower office building at 600 de Maisonneuve Blvd. W. and the adjoining 134,943-square-foot Promenades Cathédrale underground shopping centre were sold by BentallGreenOak to Groupe Petra and Groupe Mach for $195.5 million on Nov. 5. Tenants in the CBD building include KPMG, Gildan Brands, Telus and CIBC.
8. Summit Industrial Income REIT acquired a fully leased property with 534,111 square feet of logistics space and 231,034 square feet of office space at 2300 Émile-Bélanger St. in Saint-Laurent from Saint-Laurent Property Trust for $183.35 million on April 9.
9. Hypertec’s 575,784-square-foot Hypertec Centre — which includes industrial, data centre and office space at 9200-9300 Trans-Canada Highway in Saint-Laurent — was sold internally by Hypertec Infrastructures Inc. to Hypertec Real Estate Inc. for $125.4 million on Aug. 13 for accounting purposes.
10. Dream Industrial REIT acquired a 38.4-acre property with a 525,922-square-foot distribution centre and two expansion phases totalling 220,000 square feet at 401 Marie-Curie St. in Vaudreuil-Dorion from Vista Properties and Groupe Quint (which rebranded itself as Brasswater in October) for $114.15 million on Jan. 29.
EDITOR’S NOTE: This list was updated after being published to include a portfolio sale by Raamco to Banvest (No. 6 on the list). The transaction had closed in two tranches, and the buildings were input individually into the database, so the acquisition did not show up in the original search. However, we have included it here because the second tranche did close as a portfolio, at the same time in early 2021.