West Island Industrial Real Estate in the Current Canadian Economy - March 2018

A brief by John Burrascano, Industrial Commissioner, March 7, 2018

Introduction

The world economy is experiencing a good start to 2018. There is, however, concern as to how long the good economic times will last, principally due to rising protectionist American economic policy.

Parkinson (2018) reports that since November, 2017, the Canadian economy has performed very well, particularly in manufacturing and exports. Gains were also made in retail and wholesale as well as in mining and oil-gas extraction. Although the economy performed exceptionally well in 2017, some economists as well as Canada’s Finance Minister, Bill Morneau, say that 2018 shall be a more modest year in terms of economic growth (Canadian Press, 2018). Some key reasons contributing to this conclusion include uncertainties surrounding NAFTA negotiations with the U.S. and their rising protectionist stance, a higher interest rate environment, and more stringent mortgage regulations that can slow both housing and consumer demand.

National Bank of Canada economic forecast for Canada indicates a 3.0% Gross Domestic Product (GDP) rate for 2017; 2.5% for 2018; and, 1.5% for 2019. For the province of Québec, the bank forecasts real GDP growth rates of 3.0% for 2017; 2.3% for 2018; and, 1.3% for 2019 (National Bank of Canada, 2018).

Political and economic opinion and statistical evidence, therefore, indicate a trend of a slowing Canadian and Québec economy between 2017 and 2019.

An economically strong 2017 caused lots of activity in Montréal’s industrial real estate market. In fact, by the third quarter of 2017, CBRE states in their Marketview report (Q3, 2017) that there was a lack of industrial product to satisfy demand. It was that kind of year. By the fourth quarter of 2017, the West Island industrial vacancy rate (excluding Lachine and St-Laurent) sat at 4.6% compared to the 6.5% rate in the fourth quarter of 2014 (Colliers International, 2014 and 2017). In December, 2017, Montréal’s unemployment rate stood at 6.0% (Statistics Canada, 2018 (1)), the lowest level in at least 10-years and the province of Québec recorded an unemployment rate of 4.9%, unseen in 40-years (Statistics Canada, 2018 (2)).

For the West Island, excluding Lachine and St-Laurent, Jones-Lang-LaSalle (2017)  sums it up as ‘’…one of the hottest submarkets in the GMA…In the fourth quarter, there was over 600,000 square feet across 23 buildings leased resulting in 214,071 square feet of positive net absorption’’.

At the beginning of 2018, because of strong overall demand for industrial product, the West Island is witnessing a lack of industrial buildings for sale and a general lack of larger surface area buildings. If the economy holds and if demand holds, we are poised for speculative developments.

Despite the very recent turbulence in the financial markets, the fundamentals currently sustaining our economic momentum hold and the trend for the Canadian economy remains positive. In 2018, however, expected is generally more tepid demand for industrial space in Montréal and it’s West Island region than in 2017 and an overall economic performance dependent on two key variables, namely, trade levels and the wild card, U.S. economic policy.

Bibliography

Canadian Press                     
‘’Economy Will Slow in 2018, Morneau Says’’. Canadian Press, January 12, 2018 (retrieved online January 31, 2018).

CBRE.
‘’Lack of Availability Can’t Support Demand’’. Marketview-Montréal Industrial, Q3, 2017. CBRE Research.

Colliers International
Industrial Market Report (Table). Q4, 2017 and Q4, 2014.

Jones-Lang-LaSalle
Industrial Insight Report—Greater Montréal Area. Q4, 2017.

National Bank of Canada
Monthly Economic Monitor. National Bank of Canada Financial Markets, February, 2018.

Parkinson, David  
‘’Economy ‘Firing On All Cylinders’ as Canada Sees Best Growth in Six Months’’. The Globe and Mail. January 31, 2018 (retrieved online January 31, 2018).

Statistics Canada (1)
‘’Labour Force Characteristics, Seasonally Adjusted by Census Metropolitan Area’’. Statistics Canada (www.statcan.ca), 2018.

Statistics Canada (2)
‘’Labor Force Survey, December, 2017’’. Statistics Canada (www.statcan.ca), 2018.