The Québec commercial real estate market is transitioning into a new cycle. After two years of rising interest rates, slower deal flow, and repricing across asset classes, the fundamentals in 2025 are starting to stabilize — but the opportunities ahead will look different from those of the past decade.

As financing costs slowly decrease and demand patterns evolve, four sectors stand out as strategic plays for the next 12–18 months: multi-residential, necessity-based retail, land development, and office repositioning. Here’s a breakdown of where the market is heading — and how investors, developers, and owners can position themselves to capitalize on the next cycle.

1. Multi-Residential: Resilient Demand, Slower Growth, and Creative Capital Stacks

Market Snapshot

Multi-residential remains the most resilient asset class in Québec — driven by population growth, record immigration, and chronic housing undersupply. However, the story is shifting from rapid rent growth to slower, more stable fundamentals. After years of double-digit rental increases, vacancy rates are inching up slightly in major metros like Montréal, Laval, and Québec City as new projects deliver. Incentives such as free rent or reduced parking fees are reappearing in some submarkets.

What’s Changing

• Rent Growth Normalization: Expect annual rent growth to slow into the 3–4% range in most urban cores.
• Increased Vacancy: A temporary increase as 2023–2025 construction completions lease up.
• Financing Dynamics: CMHC-insured debt remains a key tool, significantly reducing the cost of capital, especially for stabilized or purpose-built rental projects.

Strategic Play

• Focus on value-add repositioning (renovations, unit reconfiguration, amenity upgrades) to drive NOI without speculative rent assumptions.
• Consider mixed-use developments that integrate retail or office components to diversify revenue streams and improve financing terms.
• For new construction, partnership models (LP/GP) and vendor take-back (VTB) financing can make deals feasible even in a higher cost-of-capital environment.

2. Retail: Necessity-Based, Experience-Driven, and Investor-Favored

Market Snapshot

Retail has emerged as one of the most stable asset classes in the post-pandemic era. Québec’s fundamentals are anchored by necessity-based retail — grocery stores, pharmacies, banks, and service tenants — which continue to post strong sales and low turnover. Limited new supply, zoning constraints, and high construction costs have all contributed to strong occupancy rates and upward pressure on renewal rents.

Key Trends

• Limited New Development: High construction costs and long entitlement processes limit new supply, strengthening existing centres.
• Omnichannel Tenancy: National retailers are shifting to smaller, experience-driven formats, combining physical presence with online platforms.
• Investor Demand: Institutional and private investors continue to target food-anchored retail and neighbourhood plazas, often accepting lower cap rates for security of cash flow.

Strategic Play

• Target necessity-based centres in growth corridors (South Shore, Laval, Québec City suburbs) with long-term anchor leases.
• Explore value-add retail repositioning, including adding drive-thrus, pad sites, or residential density through zoning intensification.
• Consider retail-to-residential or mixed-use conversions for underperforming assets in urban markets.

3. Land Development: A Window of Opportunity Emerging

Market Snapshot

The land market slowed dramatically in 2023–2024 as higher interest rates, rising construction costs, and buyer caution reduced transaction volumes. Many sites that traded aggressively during the peak are now sitting idle, and sellers are becoming more flexible. With borrowing costs trending down and demand for housing and industrial space still far outpacing supply, 2025–2026 may represent a strategic entry point for long-term land investors and developers.

Key Trends

• Repricing: Land values have adjusted downward by 15–30% in several submarkets, particularly for sites purchased speculatively.
• Municipal Planning Pressure: Cities are accelerating zoning and density initiatives to meet housing targets, creating opportunities for strategic acquisitions.
• JV and Partnership Structures: Developers and investors are increasingly using joint ventures, phased closings, and VTBs to reduce upfront capital requirements.

Strategic Play

• Acquire entitled or near-entitled land for multi-residential or mixed-use projects while pricing remains below replacement cost.
• Explore assembly opportunities for larger-scale developments, particularly around new infrastructure projects (REM, Metro extensions).
• Secure land positions early for longer-term industrial and logistics development, where demand is likely to rebound fastest.

4. Office: A Market of Challenges — and Strategic Conversions

Market Snapshot

The office sector remains the most polarized asset class in Québec. Demand for commodity B and C class space continues to weaken, with tenants consolidating footprints and prioritizing modern, amenity-rich environments. However, prime Class A and AAA buildings with strong ESG credentials and transit connectivity are stabilizing, and some submarkets are even seeing modest absorption.

Key Trends

• Flight to Quality: Companies are trading square footage for quality, seeking spaces that help attract and retain talent.
• Conversion Momentum: Office-to-residential conversions are accelerating, particularly in Montréal’s downtown core and older suburban nodes.
• Incentive-Driven Leasing: Free rent periods, large TI packages, and flexible lease terms remain standard, especially for Class B/C buildings.

Strategic Play

• Focus acquisitions on best-in-class assets in transit-oriented locations with proven tenant demand.
• Reposition underperforming properties through renovations, ESG upgrades, or partial conversions to residential or flex space.
• Partner with municipalities on conversion incentives and density bonuses to unlock new value.

Final Thoughts

The Québec commercial real estate market is entering a more strategic, fundamentals-driven phase. The next 12–18 months will reward disciplined investors and developers who focus on long-term demand drivers, capital structure creativity, and value creation through repositioning.

Those who position early — acquiring land before the next construction cycle, securing prime retail centres with stable cash flow, converting obsolete office space, or optimizing multi-residential portfolios — will be best placed to capture the upside of the next real estate cycle in Québec.

Key Takeaways for 2025–2026

• Multi-Residential: Still the most resilient long-term asset class, but success will rely on operational efficiency and creative capital structures.
• Retail: Necessity-based retail remains highly sought-after, with strong tenant demand and limited new supply supporting long-term value.
• Land Development: Repricing and government pressure on housing supply create a unique window for strategic acquisitions.
• Office: Quality space will thrive, while older assets will require aggressive repositioning or adaptive reuse to remain competitive.