The second-quarter reports just landed. They tell the story of a commercial market that is healing, but not at the same pace across segments. Here's what the numbers actually say, and why it matters if you own or have your eye on a building on the South Shore.
The backdrop: a policy rate that no longer moves
Let's start with what frames every investment decision. On July 15, the Bank of Canada held its policy rate at 2.25%, a sixth hold in a row. All 36 economists polled by Reuters expected the pause. For a commercial buyer, that stability is worth a lot: it makes five-year financing something you can calculate rather than guess. When the cost of money stops surprising people, deals start moving again. That's the context you have to read the rest through.
Offices are filling from the top down
The clearest signal of the quarter comes from offices. Greater Montreal's vacancy rate sits at 18.0%, its lowest level since the second quarter of 2023, according to CBRE. The figure is still high, and I won't pretend otherwise. But two details change the read. First, if you strip out space that has been listed for more than three years, often dated units nobody wants, the real rate drops to 12.4%. Second, the recovery is happening through quality: direct vacancy in downtown Class AAA towers is down to just 4.8%, and asking rents for that space are hitting new highs, between $33 and $42 per square foot.
Sublease space, a barometer of remote work, is deflating too. Sublet availability across the greater region fell 12.4%, to 1.4 million square feet. In other words, companies are taking back the space they had put in the shop window during the pandemic. Downtown Class A and B just posted three straight quarters of positive net absorption. The recovery is real, but it leaves the lower-quality buildings behind. That's true downtown, and it's true for South Shore office parks: a well-located, well-maintained building stands out more than ever.
Industrial catches its breath, in tenants' favour
On the industrial side, the picture is more mixed, and that's good news if you're looking for space. Montreal recorded 786,000 square feet of net absorption in the second quarter, the second-largest volume in the country after Toronto. So the demand is clearly there. At the same time, new space keeps getting delivered, which pushed availability up by roughly 110 basis points on the quarter. Both things are true at once: a lot is getting leased, but construction is still running faster than absorption.
As a result, rents are slipping. The national average net asking rent fell 3.9% year over year, to $14.78 per square foot, a decline led by the two biggest markets, Toronto and Montreal. Remember that the region's industrial vacancy had already begun its first decline since late 2021 earlier this year. So the market isn't in free fall, it's rebalancing. For a business owner signing a lease today, that means real room to negotiate, on rent and on inducements alike. This window won't stay open forever.
Rental eases, without collapsing
Multifamily remains the backbone of investment in Montreal, and it too is sending an easing signal. Greater Montreal's rental vacancy rate rose to 2.9%, according to CMHC, driven by the many completions of recent years. The loosening is showing up in particular on the island and on the South Shore. Even so, the average rent for a two-bedroom climbed 7.2% year over year, to $1,346. Rental demand stays solid, simply because new supply takes time to catch up with the population.
What this means for the investor: multifamily yields are still in demand. In its second-quarter cap rate report, CBRE notes that cap rates compressed across most property types nationally, while multifamily held flat. Translation: buyers are still paying up for a good rental building, and cap rates aren't rising. If you own a well-kept plex or small building on the South Shore, your asset is holding its value. I broke down the financing mechanics in my piece on the MLI Select program, and the broader picture of institutional money in the one on the $2.9 billion invested in the first quarter.
What this means for you
- You own a commercial, industrial or rental building on the South Shore: quality gets paid for and the gap with everything else is widening. A well-located, well-maintained building is probably worth more than you think; a weaker-positioned asset deserves a strategy before it hits the market. Either way, you need to know its real value.
- You're looking to invest: rental is holding up, but cap rates won't do you any favours. The best opportunities are in buildings to reposition and in segments where new supply is still weighing on prices, like second-hand industrial.
- You're a business owner looking for space: this is your moment. Industrial rents are slipping and new space is still waiting to be filled. You have negotiating leverage today that rising absorption could erase within a year or two.
I work both sides of the market, residential and commercial, and it's often where the two intersect that the best opportunities on the South Shore reveal themselves. Want to know the value of your building or assess a project? Request a free evaluation or write to me directly. I answer personally.