Rethinking strategies in a changing landscape

The convergence of new residential developments, immigration policies and steel tariffs, creates a complex landscape that demands a strategic approach. Here’s a look at how these factors are shaping the future of commercial real estate in the province and what it means for those invested in the market.

Projects such as the conversion of old auto dealership sites into residential developments underscores a growing trend in the commercial real estate market. The strategic location of these sites, often near commercial arteries and public transportation, makes them prime candidates for redevelopment in a context of acute housing shortage.

On one hand, the conversion of underutilized commercial spaces into residential properties can meet the pressing demand for affordable housing in urban areas. The LaSalle project, for instance, will include 155 rental units, 16 of which will be offered at below-market rates. This aligns with the broader need for affordable housing in Montreal, where the cost of living continues to rise. However, the competition for these prime locations is fierce, and the cost of conversion can be significant.?

While the conversion of commercial spaces into residential units addresses housing supply issues, Canada’s current immigration policies present a different set of challenges. According to a recent BMO report, the unemployment rate for recent immigrants has surged to 13%, significantly higher than the national average. This suggests that while Canada’s aggressive population growth strategy aims to stimulate the economy, it may be creating more strain than relief in certain sectors.

Another stone just hit the construction industry with the recent announcement of a 25% tariff on steel and aluminum products imported from China. Developers are likely to see an increase in construction costs since steel is a critical component in both residential and commercial developments. It is expected that any increase in its price will inevitably be passed on to end-users, whether they are buyers, tenants, or investors.

In the Quebec province and especially across the GMA, construction costs are already high with a market sensitive to fluctuations in material prices. Tariffs could exacerbate the already challenging environment for developers, especially those involved in large-scale projects. This may result in delayed projects, reduced profitability, and in some cases, the cancellation of planned developments.

The trends and challenges outlined above underscore the importance of a proactive approach to market changes. Whether it’s capitalizing on the conversion of commercial spaces, navigating the complexities of immigration policies, or mitigating the impact of rising construction costs, success will require careful planning and strategic decision-making.

For those invested in Quebec’s commercial real estate market, the key question is: How will you adapt your strategy to navigate these evolving challenges??