Cap rates: yields are tightening on the South Shore

The question I hear most is about price. What is my building worth, what should I offer. The real answer hides behind a number people rarely talk about: the cap rate. It just moved, and not in the same direction for every kind of building. Here's how to read that shift if you own or are eyeing an income property in our area.

Yields are tightening, but not evenly

Let's start with the underlying number. According to CBRE, the average all-property cap rate in Canada slipped to 6.58% in the second quarter of 2026, down 3 basis points on the quarter. A falling cap rate means rising prices: the buyer accepts a thinner yield for the same income. Capital is coming back, and it's pushing building values up.

But the average hides the real story. CBRE notes that retail and seniors housing are leading the compression, with the sharpest declines. Office and industrial follow, more gently. Multi-family is holding flat. In other words, the sector everyone has been chasing for two years is exactly the one where yields have almost stopped moving.

Where the money is really going in Greater Montreal

Altus gives the sector-by-sector picture for the first half of the year. Total commercial investment reached $5.7 billion in Greater Montreal, up 38% year over year. Multi-family took half of it, at $2.9 billion, up 30%. So far, nothing new under the sun.

The interesting move is elsewhere. Office jumped 149%, to $720 million. Industrial climbed 49%, to $950 million, even as its availability rate rose to 8.9%. Retail gained 10%, to $529 million. And land drew $644 million, up 26%, with $320 million of that in residential land. Capital is no longer betting on rental alone. It's spreading out, and it's hunting for yield wherever there's still some to be found.

The spread over risk-free money is the real test

Here's the calculation I look at first. An income property produces a yield. A Government of Canada bond produces another, risk-free. The gap between them is the premium the investor earns for the risk, the management, and the fact that you can't sell in one click. In the second quarter, CBRE put that spread at 320 basis points over the 10-year bond.

The catch is that the 10-year bond has climbed since then. By late September it was running around 3.96%. When the risk-free rate rises and the cap rate stays flat, the spread narrows, and the buyer's safety margin shrinks. That's exactly where you have to keep a cool head.

On the financing side, the Bank of Canada held its policy rate at 2.25% on September 2, and its next decision lands on October 28. The five-year fixed rate sits around 4.59% for an insured loan and 5.09% for a conventional one, according to nesto. For plenty of buildings, the cost of borrowing stays glued to the building's yield, sometimes above it. Leverage no longer does the work on its own the way it did in 2021.

What this means for you

• You own a building on the South Shore: cap rate compression works in your favour. A lower market yield means a higher value for the same net income. But it's your net income that decides, not the regional average. Before you set a price, get the real value established from your leases, your expenses, and the gap between your current rents and the market. That's the number that holds up in front of a serious buyer.
• You're looking to buy: the yield is thin and the spread over the bond is narrowing. Every assumption counts. Compare actual rents to market rents, budget the repairs, and stress-test your structure at a renewal rate higher than today's. A well-placed building in Longueuil, Brossard or Saint-Lambert defends itself better than a bargain in the wrong spot carried by optimistic numbers.
• You're allocating capital: multi-family is still solid, but its yields have almost stopped moving. A well-located retail unit or a small industrial building can offer an extra point of yield, in exchange for more management and leases to watch. Look past the reflex to buy a plex. The right sector in 2026 depends on your risk tolerance and your horizon, not on what's in fashion.

I work both residential and commercial, and the income property sits right where the two meet. That's where I can be most useful to you on the South Shore. Want to know what your building is worth or run a purchase past a second set of eyes? Request a free evaluation or write to me directly. I answer myself, every time. I also recently laid out why Longueuil leads investment on the South Shore.