Downtown Montreal: Build, renovate or bail out

By Robert Frank

The real estate investors who will gain from Montreal’s current city core renaissance are the ones who offer quality properties, remarked Claude Sirois.

“One of the strongest trends is the return to urban life,” observed Ivanhoé Cambridge’s co-chief operating officer. “The demand for downtown living has driven the city to develop its core lifestyle amenities—offices, shopping centres and other asset classes.”

“It’s not just about diversification,” Sirois suggested. “It also rests on the quality of those assets.”

“Managers and owners will have to work harder and invest in their buildings, in order to attract the capital that is currently available in today’s highly liquid international market,” he forecast.

“Major customers expect to couple more space efficiency and energy efficiency with an urban lifestyle and advanced technology,” Sirois asserted. “The best tenants want to locate in the best areas, which benefit new office developments.”

Ivanhoé Cambridge itself has banked on the future of the downtown Montreal market. It has invested conspicuously in the city core, with significant work planned for the Fairmont Queen Elizabeth Hotel, Montreal’s iconic Place Ville Marie and the soon-to-be launched 900 de Maisonneuve West office tower.

“We see more and more sub-lease and a strong move into downtown Montreal,” Sirois explained. “Owners who are slow to upgrade their office buildings there will have major catch-up to do. That’s why we invested heavily in Place Ville Marie in recent years, and will continue to do so. It competes fiercely with younger buildings.”

“Don’t expect to see any strong movement in occupancy rates,” Sirois predicted. “There is also a counter-movement to relocate to new industrial clusters in other parts of Montreal, such as Mile End. The losers will be aging office space in the suburbs.”

He noted that Montreal is well-placed to profit from global real estate capital’s recent flight to safe havens.

“There’s a trend for Asian money to move into European and—increasingly—North American real estate,” Sirois said. “Institutional and private investors want stable returns, so they value the resilient Canadian market.”

“Let’s be clear, though,” he cautioned. “The United States is poised to outperform Canada, where a weaker dollar fails to compensate for poor productivity and excessive household debt.”

Furthermore, “our aging population limits our ability to take advantage of U.S. growth,” Sirois concluded.

Note: This report appeared on page 19 of the Spring 2014 issue of Canadian Real Estate Magazine.

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