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Montreal 2 The Canadian Quartet: Playing on the World Stage Montreal's City Dynamics: The Cosmopolitan Heart of the Country The creative remedy One of Montreal’s distinctions is its reputation as a creative city, with its wide cross-section of media, fashion and design firms combining with its restaurant, art and nightlife to offer a markedly vibrant scene. With over 200,000 students and cultural industries' workforce larger than Sydney’s, Montreal is alone in the northern half of North America for having a visible late-night Mediterranean culture.18 While it does not quite match Vancouver and Toronto in liveability indices, the city is still attracting numerous multinational firms looking to take advantage of a highly educated workforce. In 2013 for example, Swedish telecom giant Ericsson announced its project to build a C$1.3 billion, 40,000 square metre global R&D centre in Vaudreuil-Dorion just west of the Island of Montreal.19 The city’s growing embeddedness in the global corporate economy sees it placed 58th in the biannual ‘Globalization and World Cities’ assessment, a significant 24 place improvement since 2008, putting it in a similar league as Berlin and Dallas for global business links.20 A revitalized city Montreal effectively lost C$50 billion of corporate assets to Toronto in the 1970s. Inheriting large debts from the previous expensive cycle of projects, the city was left in the economic doldrums for nearly a decade. Since the 1980s, Montreal’s business and political leaders have sought to reposition and revitalize the city as Canada’s cosmopolitan and innovative nerve centre.21 A signal of some success is that Greater Montreal was awarded the prize for 'Best Major American City for Foreign Direct Investment (FDI) Strategy' in fDi Magazine's American Cities of the Future 2013/14 rankings, coming ahead of the other 126 major cities across the Americas that enter for this category. New IT and biopharmaceutical R&D sectors have been highly successful in driving the new post-industrial economy, especially in districts such as Old Montreal, Lachine and Cité du Multimédia. Today, new hubs are emerging in the CBD and Midtown markets. For example, the Montreal Technopole / Quartier de la Santé, located on the east side of the CBD, is being fuelled by the construction of the new CHUM hospital and will be characterized by government-owned research and development buildings. Elsewhere, located on the south-west border of the CBD, the Quartier Innovation is a joint effort by McGill University and ETS (École de technologie supérieure) to create the largest concentration of information technology and multimedia workers in Canada. Knowledge in numbers The success of Montreal’s affordable higher education offer outstrips that of its domestic rivals, reflected in it having the highest number of university students per capita of any city in North America. The city’s R&D incentives are world-leading and, alongside Boston, it is the only North American city in the top 10 in the QS University rankings. With a large and diverse student population, Montreal gets its strongest score in the ‘student mix’ category of the Best Student Cities index. This notable student appeal wins it a 9th placing in popularity and a 21st position in the world in the wider university rankings.22 Universities have a strong link to future real estate opportunities as they often act as a focal point for and around which other real estate developments will emerge, a benefit which Montreal can leverage as ‘knowledge cities’ become an important focus of future investment. JLL | World Winning Cities Series Governance and leadership – reviving the global vision Montreal has a complicated system of isolated municipalities and layered governance, and a radically decentralized system has seen power transfer from the mayor’s office towards the city’s 19 boroughs. As a result, a variety of plans from the central city and large suburban boroughs overlap and the Montreal Metropolitan Community faces challenges of co-ordination as a metropolitan planning agency. At the same time, the lack of a unified metropolis has constrained the city’s global vision. Add to this the much publicized problems of corruption, mounting debt, infrastructure and payroll costs, and the challenge for new Mayor Denis Coderre to regain true leadership of the city is clear. Mayor Coderre has made an impression even in his first three months and the 2014 city budget could mark a shift towards greater fiscal responsibility. There is growing optimism and hopes for a better relationship and a sharing of resources between the city and its boroughs, as well as a more unified approach to competing for big projects and forming strategies to retain talent, families and businesses.23 3 4 The Canadian Quartet: Playing on the World Stage Strategies and mindsets for the future Despite strong global city rhetoric, the city still lacks a defining image, even though it has established itself as a proficient centre for design, innovation, project management and cultural expression. Downtown Montreal does not attract the same concentration of corporate activity or high-density housing as seen in Toronto and Vancouver, and the business community is arguing for far greater emphasis on the central city as the stimulus for the rest of the metropolitan economy. This process is made harder by a decline in public trust in the political process and the municipal administration, although this has recently begun to be addressed. The Montreal Development Plan (MDP), however, does take stock of the city’s strategic vision for the next 20-year cycle. It calls for investment-led transformation of underground and surface infrastructure, cultural and sports facilities, and economic positioning. It looks to lead the city towards values of sustainable public and private sector-led development, while embracing innovation, creativity, research and education. It recognizes the city’s assets to be its downtown cultural vibrancy, inclusivity, diverse knowledge economy, distinctive neighbourhoods, green space, and capacity for transport-led growth. “Montreal has a reputation as a city with an enviable quality of life. The mix of activities, housing and parks, the proximity of shops and services and community facilities and an efficient public transit system, along with vibrant neighborhoods and a climate of social tolerance and inclusiveness, all contribute to this reputation” Draft Montreal Development Plan, 2012 A new value add The MDP identifies the land availability and development potential around metro and train stations and areas near the highway 15-40 and 25-40 interchanges as key to achieving greater density and diversity by 2020. It also prioritises expansion of the port zone in the l’Assomption district to build the city’s role as a shipping and logistics hub. In terms of economic development, a lot of momentum has built up around the consolidation of seven high-value metropolitan clusters. These clusters – aerospace, audio-visual, clean technology, financial services, ICT, life sciences and logistics – are seen by business and Quebec province representatives to possess the critical mass for the city to be competitive through the next cycle. JLL | World Winning Cities Series Montreal Montreal Development Plan In downtown Montreal and its central neighbourhoods, it is important to continue strengthening economic, cultural, education, research and healthcare activities. In addition there are opportunities in the Western and Eastern employment and economic centres and areas near the highway 15-40 and 25-40 interchanges that will make it possible to achieve greater urban diversity and density. Montreal Development Plan, April 2013 5 6 The Canadian Quartet: Playing on the World Stage Montreal's Real Estate Dynamics: A Dense, Dynamic and Welcoming City Montreal’s commercial and residential real estate market is the second largest in Canada, and although the city has been facing some political instability in the last 18-24 months, investors and developers still see opportunities for attractive real estate investment returns. Montreal saw the strongest growth in direct commercial real estate activity among the Quartet cities in 2013 with volumes nearly double those of 2012 levels. Condominiums to boom In terms of residential real estate, Montreal remains a dense, dynamic and welcoming city benefiting from one of the best standards of living in North America. Home prices and average rents continue to be lower than other major Canadian cities and the market is expected to see moderate growth over the next several quarters. The condominium sector will continue to experience the biggest boom in the next two years with the market forecast to expand by nearly 15%. This acceleration is arriving as unit deliveries in cities such as Toronto and Vancouver are poised to begin decelerating. A retail foothold Montreal continues to be an attractive market for American and European brands looking to open a first location in Canada. Although personal incomes in the city remain slightly lower than the Canadian average, the city has recovered the jobs lost during the Global Financial Crisis. The level of construction is stable and consumers have not reduced their discretionary spending as much as anticipated; the vitality of the sector will continue to benefit from a steady increase in income and expenditure per person. Investors expect a rise in retail rents and values equal to or slightly higher than the general rate of inflation over the coming years. Office vacancy rates and affordability on the rise The Montreal office market is the second largest in Canada and represents roughly 19% of the country’s total office space. Although net absorption was positive in 2011 and 2012, the market experienced deteriorating market conditions and weaker leasing momentum in 2013. As a result, and in combination with increased amounts of new supply, the total vacancy rate has risen above 10% for the first time since 2006. With corporate demand for modern top-tier facilities, another 2.75 million square feet of new office space is set to be added to the market in the next two years. Despite the space left behind following upgrading, we expect the vacancy rate to continue rising. On the upside, with an average gross rental rate below the national average, Montreal remains affordable relative to the other cities in the Quartet. Industrial shows improvement The industrial market has also seen improving market conditions since the Global Financial Crisis. The strength and diversity of its economic structure and its surplus inventory has allowed Montreal’s industrial market to post decreasing availability rates while maintaining affordable total rents. Despite this, new projects centred on recent infrastructure and transportation developments are being delivered off the Island of Montreal. JLL Canada: Offices Calgary 300, 129 – 8th Avenue SW Calgary, Alberta T2P 1B4 Tel +1 403 456 2104 Mississauga 110 Matheson Blvd West Suite 107 Mississauga, Ontario L5R 4G7 Tel +1 905 502 6116 Ottawa 275 Slater Street Suite 1004 Ottawa, Ontario K1P 5H9 Tel +1 613 656 0145 Toronto North 251 Consumers Road Suite 910 Toronto, Ontario M2J 4R3 Tel +1 647 728 0457 Edmonton 10235 101 Street Suite 1331 Edmonton, Alberta T5J 3G1 Tel +1 780 328 2550 Montreal 1 Place Ville Marie Suite 2121 Montréal, Québec H3B 2C6 Tel +1 514 849 8849 Toronto 199 Bay Street Suite 4610, Box 407 Toronto, Ontario M5L 1G3 Tel +1 416 304 6000 Vancouver 400 Burrard Street 21st Floor Vancouver, British Columbia V6C 3A6 Tel +1 604 998 6001 Contributors: Rosemary Feenan Global Research [email protected] Tel +44 7399 1198 Contact: Jeremy Kelly Global Research [email protected] Tel +44 7399 1199 Josh Gelormini Americas Research [email protected] Tel +1 312 228 2060 Lucy Fletcher JLL International Capital Group [email protected] Tel +1 604 998 6015 Thomas Forr Canada Research [email protected] Tel +1 416 304 6047 David Green-Morgan JLL International Capital Group [email protected] Tel +65 6494 3728 Brett Miller President, JLL Canada [email protected] Tel +1 416 304 6042 For further information, please visit our website: www.jll.ca With special thanks to ‘The Business of Cities’ for their contribution. For more information on cities around the world visit the new JLL Cities Research Center The JLL Cities Research Center is our new interactive and intuitive web-based platform. It holds our World Winning Cities research and is linked to all JLL’s city research from around the world. The site is packed with a wealth of visualisations, comparative data, insights, blogs, articles and videos providing a unique perspective on cities, their performance, plans, politics and real estate opportunities. jll.com/cities-research/ COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.