Joe argues how this year presents once-in-a-generation opportunities for investment.
While no one can truly predict the future, in Montreal’s commercial real estate sector, there is every reason to assume that the next three quarters will bring sustained development and investment, and even perhaps at an accelerated rate.
“A lot of institutional money has been on the sidelines due to COVID-19, and that wait-and-see approach is totally understandable,” explained Joe Rullier, commercial real estate broker with Colliers International. “With vaccines being announced and slowly distributed, I think these players are going to be back in action sooner in the year, and with a lot more cash than they’ve spent in 2020, that’s for sure.”
Joe breaks down why Montreal’s real estate markets, both commercial and residential, probably won’t be slowing down anytime soon.
A SUMMER LIKE NO OTHER
If Quebec continues to see significant declines in infections, prepare for a partial summer reopening in the third quarter. Granted, vaccinations currently need to happen faster, but many observers are confident that the campaign will pick up speed and, if so, business leaders will have decisions to make on their real estate assets.
Many savvy investors have, in fact, already made portfolio-changing transactions; the Montreal Gazette recently reported on Joe’s record-breaking $300 million multi-residential transaction from last month.
“By summertime, business should be back to almost normal, relatively speaking. In terms of commercial real estate, a lot of the funds are on the sidelines because investors wanted to wait and see how reopenings would play out, and that there is indeed light at the end of the tunnel,” explained Rullier. “This is why I’m forecasting a big finish to 2021, powered by a crazy summer with many still playing catch-up in the fall.”
UNPRECEDENTED GROWTH IN ESSENTIAL SECTORS
Expect growth in 2021, but in spurts and across different sectors. Multi-residential and industrial development will hold steady or climb even higher, while mixed residential and commercial sectors could see an upswing.
“We’re looking at a very healthy market right now,” Joe said. “Even with the recession and the virus, interest rates are still very low and they will remain low. I think those two asset classes are going up.”
Joe’s team is seeing a lot of movement in key affected areas related to essential services for families, including the aforementioned multi-residential asset class, and on the commercial side, shopping malls, strip malls and grocery outlets that are reorganizing to suit the logistical challenges of the times.
“How do you grow in times of change? Maybe a residential area strip mall goes vertical with a focus on essential services, like pharmacies, grocery outlets and banking services while adding residential lands to their holdings? We’re already seeing this in the West Island, where development is booming.”
One undeniable fact is how retail will require literal reconstruction; we may never go back to the same in-store experience we once knew, but that doesn’t mean there aren’t solutions to the challenges of relaunching retail in a new era.
RETAIL, REBORN
What will the inside of these transformed spaces look like?
To better understand this, we must look at the pandemic’s indelible impact on consumer spending. According to global management consultants McKinsey & Company, there was a 16.5% drop in retail sales — and that’s just in April 2020. Meanwhile, shoppers are embracing change, and new brands like never before. In a survey of consumers from four countries, “40% have tried new brands or retailers.”
What works in 2021 are businesses that have a clear roadmap to reinvention. Andrea Froehle, writing for Blooloop — a publication about the attractions space (think Disneyland) — reinforces the importance of offering a price point at every level for loyal customers venturing back to the in-person shopping experience.
“Accommodating retail guests with offerings at every price point has always been a best practice. However, doing so now is vital for ensuring that your [business] offers a great experience for all,” offered Froehle.
The importance of contactless customer service and payment should be a foregone conclusion but bears repeating all the same. Additionally, some less tangible customer experiences must also be on retailers’ radars; the excitement of returning to a favourite shopping destination — the “wow” factor — is an important feeling that all retailers must capitalize on, lest they risk leaving loyal customers profoundly disappointed.
Other adaptations, according to Forbes, might include a boom in pop up stores, and even mobile app solutions that offer a heightened, personalized experience. Bottom line: listen, learn and evolve.
MAJOR DISRUPTION IN HOSPITALITY
The recovery will be a lot more turbulent and disruptive for certain sectors. As the economy reopens, the hotel industry will face considerable challenges, not only with reduced tourism but also latent fear among consumers.
Drastic times call for drastic measures — part of the solution may be to repurpose some of these buildings and divest certain assets in a bid to streamline operations. What’s important is that those in the hotel business move quickly, if they haven’t already, because hungry developers can “smell blood,” Joe warned, and proprietors who must sell assets should act promptly to get top dollar this year.
If 2020 taught us anything, it’s that the strong survive by pivoting.
“Reposition some of the assets, either in the form of residential apartments or even parking. Yes, it’s hard now for hotel owners, but it’s only going to get worse with post-COVID property valuations. Move fast and weather the storm; you’re looking at about a three-year transition into a less hostile market.”
A SOCIAL HOUSING STANDOFF BREWING
In many ways, the pandemic has been a Pandora’s Box for important societal debates.
With respect to real estate, the discussion surrounding social housing requires careful attention to detail and impartial analysis of a booming market. Joe, like many others in his field, has serious concerns about the city’s formula for social housing but in principle supports guaranteed low-income housing and family units as part of a developer’s commitment to their communities.
The question, Joe explained, is how to reconcile progressive social policy without discouraging development. It is certainly possible, if all concerned parties are willing to make compromises.
“There will have to be a reassessment of all the social housing plans being approved, in particular by the city of Montreal,” suggested Joe, with an eye toward the upcoming municipal election. “There’s a reason developers are putting on the brakes and the Mayor must understand this.”
The best direction, he said, is up. Not only is it more cost-effective to build taller buildings that house more Montrealers, but vertical can also be greener in that it saves precious greenspace. When presented with a small parcel of land, it makes more sense to build up rather than only accomodating a handful of single-family dwellings.
“The higher we build, the more affordable housing becomes for all, and in order to accomplish this, the city must adopt less restrictive zoning regulations and offer incentives to boost housing density. We can be builders and environmentalists at the same time.”