No Match Found
With Quebec real estate players expressing significant uncertainty during our interviews for this year’s Emerging Trends in Real Estate report, many were careful about making bold predictions about our market. Interviewees differed on key fundamentals, from questions about a potential rise in suburbanization to uncertainties about the future of office buildings as we enter a new world of work.
One area that has perhaps outperformed expectations is the housing market. Despite a decline in housing starts in the second quarter of 2020 in Montreal, they’ve since rebounded and, for the first 10 months of the year, are largely in line with activity during the same time frame in 2019, according to the Canada Mortgage and Housing Corporation.
One factor behind the market’s resilience is the continued investment in the Montreal region in transportation infrastructure, which has helped bolster economic activity even with the Conference Board of Canada (CBoC) predicting a 6.9% decline in gross domestic product (GDP) in 2020. Another factor boosting the multifamily market, at least for the time being, is Montreal’s 20-20-20 bylaw, which will require builders to allocate a certain portion of new units to social, affordable and family housing when it comes into effect next year.
Under the bylaw, builders must set aside 20% of new units to each of those categories, leaving just the remaining 40% to be sold at market prices. While the City of Montreal recently relaxed some aspects of the bylaw and delayed implementation to April from January 2021, many developers have seized the opportunity to accelerate projects to get them approved before the new rules take effect. Strong housing sales, helped by low interest rates and continued income growth, have given developers confidence they can sell new units they get approved ahead of the new bylaw.
Even if this segment of the Quebec real estate market has continued to fare well in 2020, the industry has significant concerns about the long-term effects of the 20-20-20 bylaw. The potential rise in prices for the remaining 40% of units sold at market rates in order to keep future projects attractive for developers and investors is one good example. Real estate players have also said the rules could have a negative impact on affordability by reducing the overall housing supply in Montreal. The city may also see a decline in housing construction later on as the current rush of projects aimed at getting ahead of the bylaw subsides.
While a possible uptick in suburbanization could be another challenge for Montreal, there are other factors working in the city’s favour in 2021.
The CBoC, in its updated economic forecast this fall for major Canadian cities, has a generally positive outlook for Montreal’s economy next year. It predicts GDP will rise by 6%, employment will be up 4.6% and the unemployment rate will fall to 6.5% (down from 9.4% in 2020). Personal income per capita is predicted to grow by a very modest 0.2% before rising about 3% in each of the following three years. Housing starts of 23,147 units will be down slightly from a projected 23,928 this year. It will be important to monitor how accurate these predictions turn out to be given fresh uncertainties caused by the second wave of the pandemic.
Importantly, population growth will continue, albeit more slowly than in 2019 and 2020. One positive contributor is the expected rebound in immigration activity, which has been so important to boosting the economy and the housing market and has been a major preoccupation for many of our interviewees this year. At the end of October, the federal government announced plans to raise immigration activity in the coming years after the COVID-19 pandemic put the brakes on new admissions of permanent residents in recent months.
Many of this year’s trends are contradictory, meaning the overall outlook for Montreal real estate remains uncertain. But for Quebec’s real estate as a whole, there are still opportunities to seize for those able to adapt their strategies in the coming years. The industrial asset class has only strengthened in Montreal, with Colliers citing an availability rate of only 2.1% in the third quarter of 2020 (down from 2.6% in Q2 2020) and a 10.3% rise in the asking net rent on a year-over-year basis. With supply so tight and demand continuing to increase, there’s a growing opportunity to repurpose assets to serve trends, like last-mile delivery, that have been fuelling industrial property.
One area of the market that’s ripe for redevelopment opportunities is the retail sector, which continues to explore ways to incorporate trends like last-mile delivery as well as the possibility of integrating other strong asset classes like residential property.
As we noted in this year’s report, the pandemic, along with the rise of remote working and growing affordability concerns, has boosted the prospects of secondary cities—also known as 18-hour cities—like Quebec’s provincial capital. With the CBoC also predicting a generally positive outlook for Quebec City’s economy, we can expect our provincial capital to offer some opportunities in 2021.
For Quebec’s real estate industry, 2021 will be all about being flexible and nimble to navigate a complex and uncertain market. Do you want to know more about how you can strategize for the future? For more insights on the long-term trends that will shape the years ahead and expected best bets for 2021, download the full Emerging Trends in Real Estate report or contact me any time.