Montreal commercial real estate market update – Q1 2025

Growth and caution in the Montreal market, with transaction volume up 36% year-over-year

The Montreal commercial real estate market in the first quarter of 2025 presented a complex picture of growth alongside emerging caution. While total investment volume reached nearly $1.8 billion, marking a notable 36% year-over-year increase, a deeper dive into specific asset classes revealed diverging trends and a disconnect with overall investor sentiment. The multifamily sector experienced significant expansion, contrasting with a contraction in the industrial and ICI land sectors. Meanwhile, the retail sector demonstrated resilience while the office sector saw some renewed activity. Despite the overall increase in investment volume, Altus Group’s latest Canadian Investment Trends Survey positioned the Montreal market in last place as an investor-preferred market. This divergence between increased investment volume and lower investor preference suggested underlying concerns or shifts in sentiment that warrant further monitoring.

Figure 1 - Montreal property transactions – All sectors by year

Multifamily investment activity

The multifamily sector stood out with robust growth, achieving a substantial $1 billion in dollar volume transacted, representing a significant 128% year-over-year surge. This strong performance may have been partly attributable to the reduction in interest rates and population growth, which potentially spurred positive sentiment among investors and encouraged new construction starts within the sector. However, the sustainability of this pent-up demand throughout the remainder of 2025 remained uncertain. Mounting trade tension with the United States and evolving immigration policies introduced additional complexities and compounded existing uncertainty within the broader market. Notwithstanding these emerging challenges, Montreal’s rental market conditions remained tight. This was a direct consequence of booming rental demand consistently outpacing the available supply of units, placing upward pressure on rental rates and highlighting the strong underlying demand for multifamily housing in the market.

Industrial market activity

Conversely, Montreal’s industrial sector experienced a notable deceleration in the first quarter of 2025. Dollar volume transacted reached $347 million, representing a 16% year-over-year decline. This contraction can be attributed to a combination of moderating demand in the face of a temporary oversupply and increased prudence among investors navigating an uncertain economic landscape. Further underscoring this shift, Altus Group’s latest Canadian industrial market update revealed a significant 220 basis point year-over-year increase in Montreal’s industrial availability rate, reaching 7.6% and marking the seventh consecutive quarter of negative net absorption. The addition of over 408,000 square feet of newly completed industrial space, all immediately available, further expanded the existing inventory. Moreover, about 777,500 square feet remained under construction, with 43% of this future space available for lease. Looking ahead, while the prospect of lower interest rates could offer some support to the sector, the uncertainty surrounding potential tariff threats posed a considerable headwind. These trade concerns could lead businesses to re-evaluate and potentially decrease their warehousing and distribution footprint, further influencing industrial space demand in Montreal.

Retail investment activity

The retail sector, however, demonstrated remarkable resilience, reaching $208 million in dollar volume transacted, representing a 41% year-over-year increase. This trend mirrored national investment preferences, with investors showing a strong inclination towards properties offering redevelopment potential. Furthermore, shopping centres and retail strips anchored by grocery stores and general merchandise retailers remained highly sought after. This preference reflected Canadian consumers’ ongoing reduced discretionary spending in response to the inflationary pressures experienced throughout 2023 and 2024, a cautious approach that has persisted in the wake of the recent trade tensions with the United States. Notably, the latest Canadian Investment Trends Survey from Altus Group highlighted the investor appeal of food-anchored retail strips in Montreal, ranking them as the third most popular product/market combination. Despite the increased market caution and economic uncertainty, conditions in the Montreal retail sector remained tight due to limited supply. The highly anticipated opening of the Royalmount shopping centre, coupled with the arrival of various new and exciting retailers across the city, injected a significant and welcome wave of retail dynamism into the Montreal market.

Office investment activity

In 2025, the evolving landscape of workplace preferences continued to exert a significant influence on how companies assessed their office space requirements. This was reflected in investment activity within the office sector, which saw a year-over-year increase of 23%, with dollar volume transacted reaching nearly $54 million. Mirroring national trends, the pronounced preference for superior-quality office environments further widened the performance gap between premium Class A buildings and the aging Class B and C inventory. This “flight-to-quality” phenomenon introduced a nuanced layer of segmentation within the market. This trend not only amplified the divergence in demand and value between Class A and their lower-tier counterparts but also created a distinct division within the Class A category, with tenants showing a growing preference for the higher quality Class AAA properties, often equipped with state-of-the-art amenities, modern infrastructure, and enhanced sustainability features. According to Altus Group’s latest Canadian office market update, Montreal’s office availability rate flattened at 18.0%, unchanged from the previous year. This stability can be partly attributed to the limited development pipeline and a few notable office conversion projects removing underutilized space from the office inventory. Notably, the first quarter of 2025 saw no new office completions. Furthermore, only one building, totalling a modest 44,000 square feet, remained under construction, with a significant 89% of that space available for lease. This limited pipeline of new, high-quality inventory could further intensify competition for premium Class AAA spaces and potentially exacerbate the challenges faced by owners of Class B and C buildings as tenants continued to prioritize quality and location in their office space destinations.

Land investment activity

The land sector saw a slowdown with total transaction volume reaching nearly $143 million, a notable 39% decrease compared to the previous year. This decline can be attributed to the waning demand for ICI land. The residential land sector saw $69 million in dollar volume transacted, marking a 13% year-over-year increase, signalling sustained demand for housing development. Conversely, the ICI land sector recorded $74 million in transaction volume, showing a 58% decrease from the prior year. An observed slowdown in industrial demand, which began in 2024, suggested a potential shift leading to a deceleration in ICI land sales as developers and investors may have become more selective in acquiring land for industrial projects. Despite ongoing challenges, such as escalating construction costs, persistent labour shortages and uncertainty related to tariffs impacting construction timelines across Canada, investors in the Montreal land market maintained cautious optimism for the residential land segment at the beginning of 2025.

Figure 1 - Montreal property transactions – All sectors by year

Notable transactions for Q1 2025

The following are the notable transactions for the Q1 2025 Montreal commercial real estate market update:

280 Liberté Avenue, Candiac - Industrial

The industrial transaction securing the second-highest sale price on Montreal’s South Shore, 280 Liberté Avenue changed hands in February for $20 million. The nearly 82,000-square-foot industrial building represented a price per square foot of $245 and was fully occupied by Nano One Materials Candiac at the time of the sale. Notably, the vendor subsequently entered into a 15-year sale-leaseback agreement, which included three optional 5-year renewal periods. Furthermore, Nano One Materials Candiac reserved the right of first offer should the buyer elect to sell the property in the future. Industry sources familiar with the deal indicated that approximately $3 million in capital expenditures would be funded by the buyer and held in escrow for potential future needs.

400 Saint-Martin Boulevard West, Laval – Office

Dominating the first quarter’s office sector as the highest sale price transaction was 400 Saint-Martin Boulevard West in the heart of Laval, also known as Place Prestige. This medical office building benefited from its prime location near prominent destinations such as Carrefour Laval, Montreal’s largest enclosed shopping mall, Place Bell, home to the AHL hockey team, and Laval Rocket, a venue for a variety of entertainment shows. Constructed in the late 1980s, Place Prestige housed a variety of medical and wellness professionals, including dentists and general practitioners. Initially listed at nearly $12 million, the property ultimately sold for $10.5 million, representing an approximate cap rate of 6% after roughly six months on the market.

6750-6800 & 6810-6830 Jean-Talon Street East, Montreal – Retail

The retail transaction with the highest sales price of the first quarter occurred in late January 2025 with the sale of 6750-6800 & 6810-6830 Jean-Talon Street East for over $28 million. This sale represented a price per square foot of $356. The vendor, Choice Properties REIT, sold this property to Groupe Mach, a leading Canadian developer and investor. This acquisition strategically expanded Groupe Mach’s presence in Montreal’s east end, adding to their portfolio of nearby properties, including the Carrefour Langelier, a neighbourhood shopping mall. The convenient proximity of both properties to Highway 25 and 40, as well as the future Montreal Metro Blue Line extension, underscored the attractiveness of this investment.

Côte-des-Neiges Affordable Housing Portfolio, Montreal – Apartment

In Montreal’s Côte-des-Neiges-Notre-Dame-de-Grâce borough, an affordable housing portfolio sold for over $103 million, marking the second-largest apartment deal in the Montreal market in Q1 2025. Canadian Apartment Properties REIT (CAPREIT) sold its portfolio of 31 buildings, comprising 717 units, to the City of Montreal. Projet Montreal stated that the acquisition aimed to sustainably protect affordable housing, prevent homelessness and address the ongoing housing crisis. This purchase aligned with Mayor Valérie Plante's broader initiative to bring the city “closer to [its] goal of achieving 20% non-market housing by 2050”. The acquired apartment buildings are scattered across the borough on Barclay Avenue, Goyer Street, de Bedford Road, de Darlington Avenue, and Hudson Road.

Figure 3 - Montreal OCR trends across 4 benchmark asset classes

Conclusion

The Montreal commercial real estate market in the first quarter of 2025 presented a nuanced landscape characterized by pockets of resilience, particularly in the multifamily and retail sectors, alongside a noticeable softening in the industrial market and a flight-to-quality trend in the office sector. The overall increase in investment volume contrasted with a lower investor preference ranking, signalling underlying economic uncertainties and sector-specific concerns. Looking ahead, the interplay of factors such as interest fluctuations, evolving trade policies, the absorption of new supply and the continued evolution of workplace preferences will be critical in shaping the market’s trajectory throughout the remainder of 2025. Continuous monitoring of these dynamics and investor sentiment will be essential for understanding the evolving landscape of the Montreal market.

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