The recent report from the Canadian Mortgage and Housing Corporation highlights the dual influence of a gradual decrease in interest rates and the ongoing pressure from increased migration and homeownership challenges on the housing markets, and subsequently reflected in the rental market as well.

Commercial real estate investors face a market with growing demand but constrained supply. With the vacancy rate expected to plummet further in 2024, we are already seeing upward pressure on rental prices. This scenario presents a fertile ground for investors looking to capitalize on high rental yields, especially in purpose-built rental housing. 

The city’s demographic trends underscore a robust population growth, maintaining a high demand for residential rentals and making strategic investments in this area increasingly attractive with vacancy rate forecasted to fall as low as 1% for the Greater Montreal area.

The stabilization of housing starts in 2024, following their lowest level in two decades, signals a modest resurgence in construction activity. Rental properties are witnessing a large amount of activity, with developers seeking opportunities particularly in suburban areas where lower land costs make projects feasible, but, the pace of construction is anticipated to increase only gradually as financing conditions improve.

In terms of the broader investment landscape, the slight resurgence in the resale market activity due to easing mortgage rates is a double-edged sword. While it suggests a recovering market, the persistent high property prices and modest increase in sales activity highlight an ongoing challenge for full recovery in commercial real estate investments. These conditions suggest that the Montréal market will continue to favor sellers, with moderately increasing property prices.

The impact of capital gains changes, as discussed in our previous analysis on the federal budget, also plays a significant role. The alterations in capital gains taxation are likely to influence investment strategies significantly. For investors, the increased tax burden on capital gains could encourage longer-term holdings, but could also discourage new actors to get into the market. This could lead to a stabilization of market volatility but might also reduce the liquidity in the commercial real estate market.

For all stakeholders, navigating these complexities will require a keen eye on market indicators. All of this demands a proactive approach to investment planning and risk management.

We at Votre Equipe are wondering: How will the changes in the investment climate and capital gains taxation influence your strategies in the Montréal commercial real estate market?