Cadillac Fairview Corp. Ltd. announced on Monday that it is pivoting its real estate project in downtown Montreal, shifting from the originally planned office space to the construction of rental apartments. The developer's project, known as "750 Peel," is set to offer 510 rental units, with an anticipated completion date in 2026.
Initially, Cadillac Fairview had unveiled plans for 750 Peel Street, consisting of two towers, and a substantial 1.2 million square feet of office space. However, the revised project description now includes some co-working and meeting spaces in addition to the rental units.
This development is a part of the broader Quad Windsor project, which incorporates the existing Deloitte Tower, three condominium towers each rising to at least fifty stories, and an additional three buildings planned to encompass a mix of townhouses, condos, and retail spaces. All of these structures are centered around the historic Windsor Station.
Despite not responding to requests for further information regarding the shift from office to rental, this decision aligns with the current real estate landscape in Montreal. Office vacancy rates have doubled since 2020, making rental housing a more attractive option.
In the third quarter, the national downtown office vacancy rate reached 18.9 percent, according to CBRE. During that period, virtually no new substantial office construction projects commenced.
The choice to proceed with a rental building coincides with the Canadian government's decision to remove federal sales tax on new rental construction. This move is aimed at encouraging more housing supply. Wayne Barwise, the Executive Vice President of Development at Cadillac Fairview, emphasized in a news release that the change in direction is "timely, significant, and more than welcomed."
This shift also comes amid increasing challenges related to high interest rates and cost inflation, which have hindered various development projects. Some real estate companies, like RioCan Real Estate Investment Trust, have postponed new large construction initiatives.
Jonathan Gitlin, the CEO of RioCan, acknowledged that tax waivers and other government initiatives are beneficial but emphasized that they are just one of several factors that impact development decisions.
Cadillac Fairview's move towards rentals is in line with a $4.7-billion residential construction plan unveiled in November 2022. This initiative, owned by the Ontario Teachers' Pension Plan, aims to deliver 7,000 rental units across 20 buildings. Construction has already commenced on their first rental building, CF Rideau Centre in Ottawa, which will include 288 units.
Moreover, developers are increasingly exploring the conversion of existing office spaces into residential units. According to CBRE, since 2021, around 2.8 million square feet of office space have been withdrawn from inventory for potential conversion into residential properties. However, CBRE cautioned that the complexity and financial challenges of such projects limit their feasibility.
