With Montréal’s real estate landscape undergoing significant transformation, from office conversions to industrial-market adjustments, understanding the forces at play is critical. Mark Sinnett, principal and executive vice president at Avison Young and head of the firm’s Québec capital-markets team, has been directly involved in many of the region’s notable property transactions over the past two decades, including several high-profile office-to-residential conversion deals in Montréal.
In a wide-ranging conversation with Green Street News, he discusses the challenges and opportunities emerging in Québec’s evolving commercial real estate market.
What are the primary challenges and opportunities you see in the office-to-residential trend, and how sustainable is it in the long term?
There are three main obstacles in office-to-residential conversion. The first is price, both to buy and to convert. In Québec, converting from office to residential requires paying GST-QST. If the government were to eliminate this tax, it would be helpful.
The second challenge is reconfiguration. Buildings before 1970 have smaller floor plates of 10,000 to 12,000 sq ft, which makes conversion more manageable. Buildings constructed after 1970 have larger floor plates of 18,000 to 20,000 sq ft, which creates difficulties. This is significant because residential apartments require natural light, and space can’t be more than 100 ft from a window, making the building’s center unusable. In contrast, office space can function 200 ft from windows.
The third challenge concerns financial investment and extended return timelines due to conversion costs. However, this challenge is offset by the potential for 100% occupancy in residential properties, making these projects viable for long-term investors.
The conversion trend will continue, particularly for buildings with appropriate floor sizes. Location presents a key opportunity, allowing residential development in dense, central areas where housing is currently limited. With new construction costs being prohibitive, conversion has become an attractive option, and demand continues to drive the development of these properties.
Recent reports indicate a potential peak in industrial vacancy rates in Montréal during 2025. What factors are contributing to this, and how are investors adjusting their strategies in response?
Two main factors are at play. First, a significant amount of new construction has been delivered. Second, the massive demand for hard goods that emerged during Covid has returned to normal levels.
During the pandemic service-cancellation period, warehousing demand exploded. The market isn’t softening – it’s normalizing. With new construction, absorption needs to occur, but, fundamentally, the industrial market remains well balanced. During Covid, discretionary spending shifted toward furniture and home exercise equipment. Now, spending has returned to entertainment, such as hockey tickets, movies and dining out. We may see a peak in Q2, as some businesses are hoarding inventory due to tariff uncertainty, but this should normalize.
Given the increasing interest in multifamily assets, what specific subsectors are attracting the most capital, and why?
Multifamily as a sector is highly coveted, with strong demand across all multifamily assets. Two specific opportunities stand out.
First are core-plus opportunities – properties 20 to 30 years old that require moderate capital expenditures and have rents 25% or more below market rates.
The second opportunity, which attracts institutional investors throughout Québec and Montréal regardless of location, involves buildings less than 20 years old that are stabilized, normalized and require no immediate capital expenditures.
With rising construction costs, how are developers approaching new projects in Montréal, and what innovative financing models are gaining traction?
We are starting to see construction come out of the ground. Construction is finally beginning to move forward, largely due to government assistance. This includes support from CMHC and cities expediting permits. Also, the federal government has waived GST on new construction. These changes have helped initiate new developments.
While purpose-built rental and social housing projects are emerging in Montréal, condo development remains stalled. Until construction costs and interest rates decrease, making condos more affordable to buy, condo construction is unlikely to resume.
A notable example is the Îlot-aux-Voyageurs project by the City of Montréal. The winning consortium, Utile and Mondev, secured approval by proposing 1,000 units, including 500 social housing units, exceeding the city’s original 700-unit target.
You’ve mentioned the volatility in capital markets impacting multifamily investments. What key metrics are investors using to assess risk and ensure long-term returns in this sector?
Investors are looking for value in several key metrics. So long as they see attractive pricing, whether measured by price per sq ft or price per door, favorable financing terms or appealing lease rates, they will continue to make acquisitions. While market conditions may fluctuate, these fundamental value indicators drive investment decisions.
