More office conversions are likely in downtown Montreal in the future due to favourable market conditions, say Avison Young Commercial Real Estate professionals based in the city.

Marie-France Benoit Avison Young’s Canadian director of market intelligence, and Sebastien Gatti, an executive vice-president for the company’s Montreal office, made the comments in an interview with Connect.

Avison Young recently represented Montreal-based Gestion Sidev in the sale of 1434 Sainte-Catherine Street West to 5AM for an undisclosed price. Plans call for the building to be converted into student housing.

Avison Young has identified close to 20 buildings that are suitable for conversions based on high office vacancy, suitable configuration, location and zoning, and other factors. The Montreal marketplace has witnessed a smattering of office conversion projects thus far.

“I would say, because of Montreal’s age, there are a lot of those smaller, very old buildings where the the owner can look at investing heavily to bring them to the levels of what office tenants want today, or decide to convert [the property] to another use, and not necessarily multi residential,” said Benoit.

“It could be a hotel, it could be something else. And the delta, the cost of doing one or the other, is shrinking. The cost of modernizing office spaces has gone up. You have office buildings in places like Old Montreal, where residential use is very suitable.”

New multi-residential development plays are unworkable downtown due to a lack of available land.

“We don’t expect to see that many conversions in the suburbs, where land is available, and you can build a brand new project on land instead of demolishing or redeveloping an existing property,” said Benoit.

The recently sold Saint-Catherine Street West building is conducive to a conversion because the floor plate size was about 7,000 square feet, the building has windows on all sides and there are separate elevator entrances for retail and residential components.

Avison Young received interest from nine prospective buyers with most looking to do conversion projects of some kind, said Gatti.

“It just had a lot of the criteria you needed, as well as [sufficient] ceiling heights for a conversion,” said Gatti.

Zoning “should not be too restrictive” for office conversions in downtown Montreal because regulations in many areas allow for mixed-use projects. But project-approval and permitting times need to be quicker, he added.

Lower office property valuations will also aid the conversion cause.

“Once the new municipal taxes come out, you’ll see the assessments going down,” he said. “Tax bills, hopefully, will be down as well. It’ll just make it more feasible for a developer on their pro forma to convert [an office building] to residential.”

Potential office conversions to residential and other uses have become a hot topic across Canada. Investors are contemplating conversions more often as they grapple with office vacancy and availability; effects of the COVID-19 pandemic and the hybrid work movement on space demand; high interest rates and other factors.

It’s too early to predict how quickly downtown Montreal’s office conversion movement will occur, but investors and developers are showing more interest this year after contending last year that the financial math did not work and the projects were too complicated, said Benoit.

“They will develop a formula for [a conversion] to work,” she said. “The demand for housing is not going down, and office is still challenging.

“So there might be other buildings that we have yet to identify as well that would have that [conversion] potential.”

Pictured (middle): Building in downtown Montreal purchased by 5AM Capital for office-to-student-housing conversion.

Photo: Courtesy of Avison Young