Industrial rents soar 63% in Montreal as demand outstrips supply

It’s a very different story for office space, as owners still try to shake off the COVID-19 gridlock.

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Montreal’s lack of industrial space helped drive up rents by the highest percentage of any major Canadian market this spring, a new study suggests.

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At the same time, some international investors have paused their search for industrial and office space until their questions about Bill 96, the Coalition Avenir Québec government’s controversial reform of language laws, are answered.

Average rents for industrial buildings in Greater Montreal soared nearly 63 percent year over year during the quarter ending June 30, according to the latest quarterly report from brokerage firm CBRE Ltd. That far outpaced the increase. national jump of 24 percent and surpassed Waterloo, Ontario’s 40 percent jump and Toronto’s 36 percent rise.

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Industrial rents in the area have more than doubled in the past three years, CBRE data shows. Median rent was $13.40 per square foot in the second quarter, up from $6.12 in the same period in 2019. The national average is $12.25.

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Demand for industrial space in Montreal and elsewhere is being driven in part by the relentless growth of e-commerce, which has accelerated since the start of the pandemic, driving companies in sectors ranging from retail to transport to look for additional warehouses. French beauty products maker L’Oréal and sporting goods chain Décathlon are among the companies that recently expanded their industrial presence with new warehouses in Montreal.

“From an occupant’s perspective, it’s still very, very difficult,” Ruth Fischer, CBRE’s senior vice president and managing director for Quebec, said in an interview Wednesday. “Some space is being built, but not enough to meet demand.”

Some 2.7 million square feet of industrial space is being built in Greater Montreal. That represents just 0.8 percent of the region’s total supply, which covers 322.4 million square feet.

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Vacancy rates for industrial space in Greater Montreal averaged 1.3 percent in the second quarter, CBRE data shows. While that’s more than the previous quarter’s rate of one percent, it’s less than the national average of 1.6 percent.

“It is still possible to find industrial space, but much more work needs to be done to find it,” said Alexandre Lagarde, vice president of foreign investment at Montréal International, the city’s investment promotion agency. “Supply is tight.”

It’s a very different story for office space, as owners still try to shake off the COVID-19 gridlock.

About 16.1 percent of Greater Montreal offices were vacant in the second quarter, unchanged from the previous three months, according to CBRE data. Vacancies in the center fell from 15.5% to 15.3%, while vacancies in the suburbs increased from 16.9% to 17.2%. Median rents for Class A buildings changed little, at $21.55 per square foot.

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While political developments have yet to affect office or industrial vacancies, many business owners are still evaluating the impact of House Bill 96 on their operations. Some employers have even paused their search for new office space while they wait for details, Fischer says.

“Bill 96 is adding some uncertainty,” he said. “On the office side, I know of some, not many, people who were going to enter the Montreal market and said this was giving them a reason to pause. The question is how much more complicated would your operating environment be for a native Anglo company entering Quebec? My hope is that it will be much ado about nothing.”

Montréal International’s Lagarde says he, too, has heard from unnamed foreign investors about Bill 96. As a result, his agency has been holding briefings with the Office québécois de la langue française and various investors to go over the bill’s content. . he said without being specific.

“There are some concerns that have been communicated to us by the heads of some of the foreign affiliates that are active here” regarding Bill 96, Lagarde said. “We recognize that there are some challenges. Our goal is to allay concerns and clarify the situation. Any business wants predictability and clarity.”

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