Montreal CRE market update – Q4 2022

Despite a range of factors impacting investment activity in the Montreal market, including the rising cost of capital and increased construction costs, total dollar volume in 2022 surpassed the total investment recorded in 2021. While Montreal registered very strong investment activity in the first half of 2022, this trend did not continue through the back half of the year as transactional volume dropped dramatically.

Q4 2022 commercial real estate investment in Montreal was slightly more than $1.8 billion dollars in the fourth quarter of 2022 and pushed the annual dollar volume for Montreal to slightly more than $11.8 billion dollars. This represented a 4.4% increase from the previous year.

While demand for commercial real estate assets generally remained high in Montreal, the two asset classes most coveted by investors were apartments and industrial properties. Annual industrial sale proceeds of slightly more than $3.9 billion dollars in 2022 marked a 44% increase compared with 2021.

Meanwhile, the multi-family sector registered nearly $3.9 billion dollars in sales, marking a 2.6% decrease from the apartment investment volume recorded in 2021. However, the decline in investment volume in this asset class does not likely stem from a dampening in demand, but rather from investors seeking to hold such assets as immigration levels rise and acquiring residential real estate remains challenging for many Canadians. Multi-family and industrial assets typically offer stable returns and rental growth potential even amid the current investment environment, which has contributed to their popularity with investors.

The resurgence in the popularity of retail assets among investors in the Montreal market area led to sale proceeds of $1.3 billion in 2022, a 32% gain compared with the previous year. While investment in the retail sector enjoyed growth in 2022, investors seemed to hit pause when it came to land sales in 2022.

Total land sales (including both ICI and residential land) recorded nearly $1.5 billion in dollar volume in 2022. While ICI land sales in 2022 declined 9% year-over-year, residential land sale volumes in 2022 plummeted 43%from 2021. The substantial decline in dollar volume highlighted that developers appear to be tightening their pipelines in response to high construction costs as well as the rising cost of borrowing, which may also make obtaining financing more difficult for some.

According to Altus Group’s Investment Trends Survey for Q4 2022, average cap rates trended upwards across most major asset classes with the exception of multi-family, which remained stable quarter-over-quarter. The overall average cap rate for the market rose to 5.05% in Q4 2022, an increase from 4.78% in Q3 2022 and 4.23% a year earlier. This increase reflected additional hesitation to transact as investors scrutinized deals more cautiously.

Notable Q4 2022 transactions

The following are the notable transactions for Q4 2022 in the Montreal commercial real estate market.

400 Marie-Curie Street and 3600 F.-X.-Tessier Street – Industrial

The most significant industrial transaction in the fourth quarter of 2022 was a portfolio sale between Morguard and CanFirst Capital Management with CanFirst acquiring two industrial properties in the deal. Both buildings comprising the $51,300,000 sale are located in Vaudreuil-Dorion at 400 Marie-Curie Street and 3600 F.-X.-Tessier Street.

The buildings contain a combined gross leasable area of approximately 266,826 square feet, which represented an aggregate price per square foot of $192. The building at 400 Marie-Curie Street is serviced by 29 truck-level doors and one drive-in door, while 3600 F.-X.-Tessier Street is serviced by eight truck-level doors and four drive-in doors and is located on a prime site west of Montreal, near the Trans-Canada Highway. 

3700 Jean-Rivard Street and 8470 Albert-Louis-Van Houtte Avenue – Industrial

Another significant industrial transaction in the fourth quarter of 2022 was the portfolio sale of 3700 Jean-Rivard Street and 8470 Albert-Louis-Van Houtte Avenue. Both industrial properties are located in the Villeray-Saint-Michel-Parc-Extension on the Island of Montreal. The portfolio was purchased by Veyron/KDP Montreal Leasing ULC from Keurig Canada for $34,400,000. The combined total gross leasable area is approximately 172,276 square feet.

Industrial and multi-family residential assets are expected to remain the two main drivers of investment activity in the Montreal market area going into 2023. Investors in Montreal demonstrated resiliency and confidence in the face of new challenges in 2022, surpassing the record high investment levels of 2021 even as deal velocity slowed in the back half of 2022. As 2023 commences, the trajectory of commercial investment activity will continue to evolve as macroeconomic challenges likely persist through the year.