Investment Insights

Investment Insights
Montréal | Q1-2015
Market insights for the
real estate investor.
In this report
Economic Snapshot
4
Multi-residential
6
Office 7
Retail
8
Industrial 9
Land 10
Economic Snapshot
With 2015 well underway, there is a renewed sense of optimism amongst
investors, primarily driven by the long-awaited export-driven lift to Québec’s
economy. A weakening Canadian dollar combined with the recent plunge
in oil prices is offering new opportunities in this traditionally manufacturingbased economy. As a large importer of oil and an even larger exporter of
a wide array of products, Québec’s manufacturing sector expects to see a
significant growth in exports, in particular to the U.S. markets. Favourable
market conditions will continue to drive growth in this sector which has
already experienced a 6.5 percent sales increase in 2014, the biggest gain
in 14 years. Québec will continue to see these widespread gains among
export commodities, and economists project that advances in foreign trade
will be a significant driver to the province’s economy in 2015 and 2016. According to Statistics Canada, the Montréal Census Metropolitan Area’s
(CMA) GDP is expected to grow by 2.5 percent in 2015, a four-year high
growth rate. This pace is predicted to continue well into 2018, varying
between 2.1 percent and 2.3 percent. Unemployment saw a slight decline
in the CMA; yet, in spite of a predicted 0.7 percent net decrease in 2014,
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over 2 million people remained employed for the second consecutive year.
It is expected that the resurgence of external trade will translate into a 0.9
percent improvement in 2015. However, the provincial unemployment will
remain at 8.2 percent, well above the national average.
From a development standpoint, the city of Montréal saw a flurry of
construction and development activity in and around the GMA. The city
will soon deliver the $1.3 billion MUHC super-hospital, a state of the art
medical facility covering approximately 2.4 million square feet which will
be the new home of the Royal Victoria, Montréal Children’s Hospital and
the Montréal Chest Institute. In addition, the first phase of the $2 billion
CHUM medical complex is set to be delivered in 2016. Located just a few
kilometers from the downtown core, the new mega-hospital is set to be
fully delivered by 2019 and will be home to the Hôtel Dieu, Notre-Dame
Hospital and the Saint-Luc Hospital. It is no surprise that these two areas
are seeing significant interest from potential developers as they look to
benefit from the changes in these strategic locations.
Investment Insights | Q1-2015 | Page 4
After a dip in 2013, residential construction posted significant growth in
the CMA for 2014, supported strongly by new major condominium projects
in downtown Montréal. In all, 14,000 multi-unit dwellings (including semidetached houses, row houses, rental apartments, condos, co-operative
housing and seniors’ housing units) were started in 2014, representing
an increase of 11.0 percent year-over-year. Of this, 9,500 were
condominiums, which posted an 8.0 percent over 2013.
Other major projects include the construction of a brand new Champlain
Bridge, the overhaul of the Turcot interchange, a new Train-de-l’Ouest
linking downtown Montréal to P.-E.-Trudeau International Airport (a $5
billion investment), as well as a significant number of office developments
in the downtown core. In parallel with this activity, the provincial government
announced a transformative new deal giving the Québec pension fund,
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the Caisse de dépôt, control and responsibility over its future infrastructure
projects. The deal will seek to unload some of the provincial government’s
debt obligations and transfer them to the Caisse, who will only invest in
projects that will be profitable to pensioners.
Along with a changing skyline, Montréal’s economy is expected to see
noticeable improvement over the next 12 to 24 months. The GDP will
continue its upward trend in 2015 and, as mentioned above, will post a
four-year high growth rate. The increase in the manufacturing sector
should lead to new job creation and an overall increase in net exports.
Significant activity in the construction sector and the recent cut in interest
rates will also continue to stimulate the economy and further increase
activity in Montréal’s real estate investment market.
Investment Insights | Q1-2015 | Page 5
Multi-residential
Cap Rate
Class A – high-rise
Q1 2014: 4.75%-5.25%
Class A – low-rise
Q1 2014: 5.50%-6.00%
Sales Volume
Q1 2014: $169 M |
Q1 2015: 4.75%-5.25%
|
Q1 2015: 5.25%-5.75%
|
Q1 2015: $151 M
Number of Transactions
Q1 2014: 57
|
Q1 2015: 29
Notable Transactions
The multi-residential investment market remained healthy in the GMA
but experienced a slight decline in the first quarter of 2015. Total sales
volume for the first quarter totaled approximately $151 million, a 9.0
percent decrease compared to the same time last year. There were
29 multi-residential properties that traded over $1 million this quarter,
representing an average price per door of $102,025 across the GMA.
The market saw a resurgence of REIT activity, which was responsible
for the biggest transactions in the multi-residential sector. The most
significant acquisition of Q1 2015 saw InterRent REIT purchase a 280unit high-rise building located in Côte-Saint-Luc. The purchase was
completed in March at a purchase price of $32,400,000 representing
$115,714 per door and a going-in capitalization rate of 5.6 percent.
Another notable transaction was the 185-unit property located at 239
Deguire Boulevard in Ville-Saint-Laurent. Skyline Apartment REIT
acquired the property for $19,100,000 or $103,243 per door.
Vacancy rates on the primary rental market increased slightly in the
GMA at 3.4 percent while average rents increased by 2.2 percent
year-over-year. However, the increase in vacancy was only observed
in one-bedroom apartments and mainly on the island of Montréal. In
comparison, vacancy rates in most suburban sectors remained healthy
and, in some cases, decreased. The total average rental rate for twobedroom apartments in the GMA sat at $739. However, this number
varies greatly from one borough to another, ranging anywhere between
$610 and $1,056.
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5501 Adalbert Avenue
Vendor: 7037457 Canada Inc
Purchaser: InterRent REIT
Sale Price: $32,400,000
# of doors: 280
Price per door: $115,714
239 Deguire Boulevard
Vendor: 9159-8151 Québec Inc.
Purchaser: Skyline Apartment REIT
Sale Price: $19,100,000
# of doors: 185
Price per door: $103,243
10231-10233 Saint Laurent Boulevard
Vendor: Private
Purchaser: 9293-5246 Québec Inc.
Sale Price: $4,780,000
# of doors: 105
Price per door: $45,524
The market saw a resurgence of REIT
activity, which was responsible for
the largest transactions in the multiresidential sector this quarter.
Investment Insights | Q1-2015 | Page 6
Office
The office investment market experienced little activity in the first
quarter of 2015 due to the absence of trophy assets trading hands.
Approximately 1.1 million square feet of office space traded in Q1 2015
for a total approximate sales volume of $67 million and an average
weighted price per square foot of $182.00.
One of the larger transactions this quarter saw Cromwell Management
acquire an 82,000 square foot office building located at 79 René
Lévesque Boulevard East in Québec City. The multi-tenant property
sold for $16.5 million or $200 per square foot. Major tenants include
CIBC, Oracle and Morneau Shepell. CanPro Investments acquired a
38,000 square foot multi-tenant office building located at 20 Place du
Commerce in Nuns Island for $11.1 million or $290 per square foot. The
data centre includes tenants iWeb Technologies Inc. and Funio.
Cap Rate
Class A – Downtown
Q1 2014: 5.75%-6.50% |
Downtown Class B
Q1 2014: 6.50%-7.25% |
Sales Volume
Q1 2014: $169 M |
Number of Transactions
Q1 2014: 57
|
Q1 2015: 5.75%-6.50%
Q1 2015: 6.50%-7.25%
Q1 2015: $151 M
Q1 2015: 29
Notable Transactions
79 René-Lévesque Boulevard East,
Québec City
Vendor: Fiducie globale des Régimes de
retraite de la ville de Québec
Purchaser: Cromwell Management Inc
Sale Price: $16,500,000
20 Place du Commerce, Verdun
Vendor: 9225‑2691 Québec Inc.
Purchaser: CanPro Investments
Sale Price: $11,100,000
9494 Saint-Laurent Boulevard, Montréal
Vendor: PSP Investments
Purchaser: Dayan Group
Sale Price: $8,900,000
The office investment market was
relatively quiet in the first quarter
of 2015, due to the absence of
trophy assets trading hands.
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Investment Insights | Q1-2015 | Page 7
Industrial
The industrial real estate market experienced growth both in terms of
the total sales volume and the number of square feet traded in the first
quarter of 2015. This growth was mainly attributable to a higher than
usual number of user and vacant sales transacting between $1 and
$4 million. However, investors’ appetite for investment grade industrial
product remains high in Montréal. This was evidenced by two significant
portfolio transactions this quarter, each surpassing the $30 million mark.
Cap Rate
Class A
Q1 2014: 6.00%-7.25% |
Class B
Q1 2014: 7.25%-8.25% |
Sales Volume
Q1 2014: $148 M |
Number of Transactions
Q1 2014: 32
|
Q1 2015: 6.25%-7.50%
Q1 2015: 7.50%-8.50%
Q1 2015: $199 M
Q1 2015: 29
Notable Transactions
There were close to 30 industrial transactions in the GMA totaling
approximately $200 million in total sales volume and close to 2.3
million square feet of space (including both user and vacant sales). Of
this, approximately 38.0 percent of the total volume this quarter were
investment grade transactions. The most prominent transaction of
the quarter saw Summit Industrial Income REIT acquire a 50 percent
interest in a portfolio of six light industrial properties in the GMA. The
acquisition was completed through a joint venture partnership with the
Montoni Group, one of Montréal’s most prominent and well-respected
developers. The properties are fully-occupied and have an average
weighted remaining lease term of 13.1 years. The acquisition added
326,409 square feet to Summit’s portfolio and was purchased for
approximately $39,400,000. As part of the financing, Montoni and Summit
have arranged for a ten-year mortgage, totaling $25.7 million with an
interest rate of 3.25 percent. Another significant investment transaction
saw Triovest acquire five properties totaling 645,492 square feet from
a joint venture partnership between KingSett Capital and AIMCo. The
properties, located in Laval, were sold for a total approximate purchase
price of $31.6 million. Post-quarter, the 800,000 square foot Aldo
headquarters located in Ville-Saint-Laurent was acquired by CanPro
Investments in a 20-year sale-leaseback transaction. The three-storey
head office includes a sky-lit atrium and is connected to a 500,000
square foot worldwide distribution centre featuring 39-foot ceilings and
over 16 kilometers of conveyors.
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Six-property portfolio sale (50 percent
stake)
Vendor: Montoni Group
Purchaser: Summit REIT
Sale Price: $39,400,000
Five-property portfolio sale
Vendor: JV – KingSett Capital & AIMCo
Purchaser: Triovest
Sale Price: $31,665,000
10050 de la Côte-de-Liesse Road
Vendor: Abond Corp.
Purchaser: Groupe Mach
Sale Price: $6,950,000
Two significant transactions highlight
demand for high-quality industrial
investment product.
Investment Insights | Q1-2015 | Page 8
Retail
The retail investment market in 2014 proved to be particularly active
for larger trophy assets including the approximate $1 billion portfolio
disposition by Ivanhoé Cambridge, the two major transactions involving
the iconic Quarter Dix 30 as well as First Capital Realty’s $100 million
acquisition of Devimco’s retail development, located in the Districtsur-Peel in Griffintown. Although the market experienced a slowdown
in these trophy assets in the first quarter of 2015, the retail investment
market remained healthy with a balanced mix of transactions involving
all property types and sizes. Approximately 1.4 million square feet of
retail space traded, representing a total sales volume of $246 million for
an average weighted price per square foot of approximately $149.00.
Cap Rate
Regional Shopping Centre
Q1 2014: 5.50%-6.00% |
Strip Centre (anchored)
Q1 2014: 6.00%-6.75% |
Sales Volume
Q1 2014: $534 M |
Number of Transactions
Q1 2014: 67
|
Q1 2015: 5.50%-6.00%
Q1 2015: 6.00%-6.75%
Q1 2015: $246 M
Q1 2015: 37
Notable Transactions
Five-property portfolio
Vendor: RioCan
Purchaser: Desjardins Asset Management
Sale Price: $120,100,000
The most significant transaction this quarter was Desjardins Asset
Management’s acquisition of a five-property portfolio from RioCan in
Québec City. The properties totaled 747,892 square feet and sold for
a total purchase of $120.1 million, representing a weighted average
capitalization rate of 6.8 percent. Another notable transaction this quarter
was the sale of Loblaws-anchored Plaza Delson in the South Shore
of Montréal. BTB REIT acquired the 145,546 square foot shopping
centre from First Capital Realty for approximately $21.5 million or $148
per square foot. In February, EconoMalls Management Corporation
acquired Place LaSalle, a grocery anchored shopping centre including
major tenants Super C, Pharmaprix, SAQ, Dollarama, Tim Hortons,
McDonalds and movie theatre Cineplex Odeon. The complex sold for a
total purchase price of $20.7 million. From a development front, the approximately 250,000 square foot
industrial building located at the intersection of the Decarie Expressway
and Highway 40 was acquired by the Dynamite Group. The transaction
will likely be the key piece for the eventual $1.6 billion Quinze40 Mega
Mall set to be developed at the heavily populated intersection. The
project’s details are set to be announced later this spring.
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15-41 Georges Gagné Boulevard, Delson
Vendor: First Capital Realty
Purchaser: BTB REIT
Sale Price: $21,500,000
7800-8000 Champlain Boulevard
Vendor: Place Lasalle Property Corporation
Purchaser: EconoMalls Management
Corporation
Sale Price: $20,700,000
As part of RioCan’s program to recycle
capital into the acquisition of higher
growth assets, it completed the sale
of five shopping centres located in
Montréal and Québec City.
Investment Insights | Q1-2015 | Page 9
Land
The market for land acquisition remained relatively healthy, with a total
sales volume for land transactions totaling approximately $121 million
in the first quarter of 2015. The most significant transaction this quarter
saw Société immobilière Huot, one of Québec City’s largest developers;
acquire 505,000 square feet of land in Les Rivières, Québec, for a
total purchase price of $25.7 million or $51.00 per square foot. Another
notable transaction on the island of Montréal was the approximately
45,000 square feet of residential land acquired for the development of
residential project Gallery Lofts sur le Canal located in Griffintown. The
purchase price was $6.9 million, representing approximately $154.00
per square foot.
Sales Volume
Q1 2014: $211 M |
Number of Transactions
Q1 2014: 39
|
Q1 2015: $121 M
Q1 2015: 24
Notable Transactions
de la Roselière Avenue, Les Rivières
Vendor: Capitale Helipro Inc.
Purchaser: Les Developpements Aventura Inc.
Sale Price: $25,700,000
25th Avenue, Saint-Eustache
Vendor: Les Projets Et Immeubles Sm Inc.
Purchaser: 9316-5280 Québec inc.
Sale Price: $14,978,587
Olier Street, Montréal, QC
Vendor: Cornell Christopher
Purchaser: Galerie sur le Canal Inc.
Sale Price: $6,924,787
Land acquisitions slowed in
Q1 2015, but remained relatively
healthy with a total sales volume
for land transactions totaling
approximately $121 million.
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Investment Insights | Q1-2015 | Page 10
Helping you maximize your
real estate investments.
For more information, please contact:
Prepared by:
Mark Sinnett
Executive Vice President
Real Estate Broker
+1 514 667 5696
[email protected]
Robert A. MacDougall
Senior Vice President
Chartered Real Estate Broker
+1 514 667 5654
[email protected]
Scott Speirs
Vice President
Real Estate Broker
+1 514 667 5663
[email protected]
Joseph von Maltzahn
Associate Vice President
Real Estate Broker
+1 514 667 5699
[email protected]
Armen Markarian
Associate
Commercial Real Estate Broker
+1 514 667 5695
[email protected]
Yann Charles
Associate
Commercial Real Estate Broker
+1 514 667 5697
[email protected]
Sebastien Gatti
Associate
Commercial Real Estate Broker
+1 514 664 5682
[email protected]
Jones Lang LaSalle Real Estate Services Inc.
Real Estate Agency
1 Place Ville Marie, Suite 2121
Montréal, Québec, H3B 2C6
Tel. +1 514 849 8849
For further infomation, please visit our website: www.jll.ca
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