Montreal’s industrial real estate market is experiencing a significant shift as available space rises near levels last seen in 2016, according to Avison Young’s latest quarterly industrial report on the region.

The total vacancy rate climbed to 5.1% in the fourth quarter of 2024, marking a sharp increase from 2.6% a year prior. This rise comes amid an influx of new supply and softened demand, contributing to a market correction, says the global commercial real estate services company.

Industrial availability surged as 4 million square feet (msf) of space was delivered in 2024, predominantly in the form of large distribution centres, at a time when demand for such facilities has waned. The past year saw a 7.6-msf increase in vacant space, reinforcing this trend. However, construction activity is expected to slow significantly, with only 1.4 msf scheduled for completion in 2025 and no new deliveries planned for 2026, a situation which may help stabilize the market.

The sublease market has also expanded rapidly, with available sublease space doubling from 2022 to 2023 and adding another 800,000 sf in 2024, reaching 1.7 msf by year-end. If Amazon’s seven distribution centres, which account for 2.6 msf, are listed for sublease, the market could see a further increase.

These properties represent 20% of total space in the 100,000-sf-plus category, which currently encompasses 13 msf. Amazon is in the process of closing these warehouses as it transitions back to a previously used supply-chain model in Quebec.

Meanwhile, rental rates have begun adjusting downward after peaking in 2023. The average net asking rent fell nearly 10% year-over-year to $15.17 per sf, with class B properties seeing the most significant declines. The discrepancy between asking and negotiated rents suggests that further reductions may follow in 2025.

While options are expanding in the sublease market, conditions remain relatively tight in small-bay properties, with a 3.2% vacancy rate.

Overall, Montreal’s industrial sector is undergoing a realignment, balancing the effects of increased supply with evolving demand dynamics, says Avison Young.

Pictured: Two Montreal industrial properties.

Image: Skyline Industrial REIT