New year, new boom: Montreal’s commercial market sees unprecedented demand

• Investment interest and bidding wars are creating a hot market for commercial real estate in Montreal.

• A reduction in interest rates and stabilized inflation are encouraging investors to re-enter the market after they've held off in recent years.

• Innovative coliving arrangements, inspired by European models, are suggested as a potential solution to Canada's housing crisis.

A wave of investment interest is driving a hot commercial real estate market, particularly in Montreal where bidding wars are taking off. Changing interest rates, investor appetite, and the affordability crisis are all playing a part in bolstering the CRE market in Canada. 

Fanny Rooseboom, Executive Vice President at the real estate investment and consulting firm PMML, shares her personal insights into what’s creating the market boom and how it’s being shaped by both economic policies and growing demand.

New year spike: Since January, the commercial real estate market has been nothing short of "crazy," according to Rooseboom. "When a new building goes up for sale, we’re seeing five to ten offers," she says. The surge in demand is largely attributed to a reduction in interest rates, with the Bank of Canada expected to announce a 25-point drop. This change comes after a period where investors waited on the sidelines to buy as inflation and rates made it difficult to enter the market.

Stabilization: With inflation now reportedly stabilizing at around 2%, many investors are back in action, eager to capitalize on opportunities before the market moves again. Rooseboom notes that, despite the increase in property values, the market has remained surprisingly resilient. "Real estate always goes through ups and downs, but it’s been climbing for 30 to 40 years, and it shows no sign of stopping."

Increasing rental rates: However, it’s not all smooth sailing. With rising prices, tenants are bearing the brunt of the economic shifts. Rooseboom points out that the rent increase cap set by Quebec’s rental board this year is a historical 6%. "It’s creating stress for everyone—the tenants, the buyers, and the ones benefiting are those who bought years ago," she says.

Affordability crisis: On the tenant side, the lack of affordable housing continues to be a pressing issue, exacerbating the housing crisis. The demand for affordable living spaces is so high that existing programs to support low-income renters are struggling to keep up. "We need thousands of units to meet the demand," Rooseboom adds, emphasizing that it will be down to government-backed initiatives to step in order to make a dent in the affordability crisis.

Europe as an example: Rooseboom suggests that the solution to Canada’s housing dilemma could lie in innovative living arrangements. "We should look at what’s happening in Europe, where communal living is gaining traction," she says. "People are sharing spaces and saving money, which could be a sustainable way to address housing affordability issues as well as climate change."