Despite the presence of several headwinds, out-of-province investors remain bullish on Quebec’s multi-residential properties market, citing a continuing strong demand from renters.
“We’re big believers in Montreal and Quebec,” Asad Hanif, vice-president of acquisitions at InterRent REIT, said.
The Ottawa-based trust owns about 3,200 housing units in the Montreal area, primarily on the island.
Speaking at the Quebec Apartment Investment Conference Feb. 22 at Montreal’s convention centre, Hanif said the province and its largest urban market have “great fundamentals and demand-drivers,” which include being a pre-eminent destination for international students and a great tech scene.
Hanif and Michael Tsourounis, managing partner and co-head of real estate at Hazelview Investments, were speaking at a session focused on out-of-province investors’ views of the Quebec multiresidential market.
InterRent's 8405 Place Saint-Charles property
InterRent concentrates its Montreal presence on downtown and the “urban fringe,” but has recently explored more suburban locations.
An example of that strategy was InterRent’s recent purchase of the newly built, 254-unit, 8405 Place Saint-Charles in Brossard on the South Shore. It’s about 15 minutes outside the downtown core (depending on traffic on the Champlain Bridge) and about five minutes from an upcoming REM light-rail station.
The property provides terrace views overlooking the St. Lawrence River, a communal garden, an indoor pool and a fitness centre. Currently available two-bedroom units rent from $1,888 to $2,469 and include utilities, Internet and six appliances.
“We’re quite excited about that acquisition,” Hanif said, adding that the building “is well-positioned to stand the test of time.”
The company likes the South Shore and Laval districts because population growth in some of these suburbs exceeds that of the island, he said.
Hazelview's Le Sommet
Quebec “is a great place to invest,” Tsourounis said. Hazelview had $11.8 billion in assets under management at the end of 2022. Citing Montreal's cultural diversity and big rental population, he said, “we feel there’s great long-term tailwinds here.”
Among Hazelview’s marquee holdings in Montreal is the downtown Le Sommet at 3475 de la Montagne St. A two-bedroom unit starts at $2,940 per month and includes access to an outdoor pool, a gym and rooftop terrace, four appliances and most utilities.
Tsourounis said Hazelview is opportunity driven and is active in the value-add space. Given the current environment in which there is more volatility and uncertainty, “we’re big believers in buying productive assets.”
He said the company doesn’t have a set allocation target for Montreal. Although Hazelview does not have multi-residential properties in Quebec City, it has been active in lending in the provincial capital which he called “a great rental market.”
Tsourounis added the presence of Quebec’s rental board, the Tribunal administrative du logement, “is not a roadblock for us. We’ve operated here for a really long time, and we continue to navigate it just fine.”
Sailing against headwinds
Noting that InterRent’s multiresidential acquisitions dropped from 2,000 units a few years ago to 300 last year, Hanif said there is quite a bit of uncertainty and volatility and “we’ve been taking a cautious approach to new investments.”
Until there is a level of stability in capital markets, “expect to see an abundance of caution irrespective of whatever incentives might be around.”
Hanif said Montreal is still dealing with headwinds that include a recession risk and a downtown emerging from the effects of COVID. Prior to the pandemic, he said Montreal was one of the fastest-growing downtowns in Canada, but office vacancy rates have since doubled.
However, there are reasons for optimism. Post-secondary international students appear to have returned, the backlog of student visas seems to have cleared and people are drifting back into the office.
In addition, rental vacancy rates have tightened, Hanif noted. According to JLL, downtown Montreal’s rental vacancy, which spiked to more than 10 per cent in 2020, has since come back down to 4.3 per cent. The overall rental vacancy for Montreal fell from three per cent in 2021 to two per cent.
Hanif added that high interest rates have “eroded affordability for new spaces so you might see people in rentals a little bit longer before they transition into buying a first home.”
Tsourounis remains bullish on multiresidential properties. He noted that while people have choices in other areas of their lives – they can shop online or go to stores; they can work from home, the office or from a public park – “at the end of the day, everyone needs housing.
"From that perspective, that’s why we continue long-term to like that sector.”