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The value of Montreal office building deals is expected to hit $615-million in the third quarter, according to new data from commercial real estate firm CBRE.Andrej Ivanov/The Globe and Mail

Investor demand for Montreal office towers has rebounded to levels that prevailed before the COVID-19 pandemic, as real estate investors dismiss concerns about the high office vacancy rate and bet on the city’s future.

The value of Montreal office building deals is expected to hit $615-million in the third quarter, according to new data from commercial real estate firm CBRE. That is close to the volume of deals before the start of the pandemic in early 2020, and is more than quadruple the $136-million of office transactions in the first quarter of this year.

“There is a flurry of activity no question,” said Scott Speirs, executive vice-president of CBRE in Montreal. Mr. Speirs said there were virtually no office building transactions in the city during the first 12 months of the pandemic. But now they are rolling in.

The latest one was this month’s sale of a BentallGreenOak office tower to two Quebec-based real estate companies, Groupe Mach and Groupe Petra, for an undisclosed sum. Called Tour KPMG, the 33-storey office building is in Montreal’s financial district. Other recent deals include Ivanhoé Cambridge’s sale of its 50-per-cent stake in the 27-floor Maison Manuvie office tower to LaSalle Canada Property Fund.

Investors are embracing commercial real estate deals despite a high downtown Montreal office vacancy rate that hit 13.2 per cent in the third quarter, up from 11.1 per cent in the second quarter, and 6.4 per cent before the pandemic.

Many companies across the country, such as accounting giant PwC and Air Canada, have reduced their office space. Others, such as Sun Life Financial Inc., have embraced a hybrid work model in which staff choose which days to work in the office.

Some companies, such as Shopify Inc. and Inc., have added more office and warehouse space, but others have given up their real estate almost entirely.

Even so, investors have renewed their interest in office property as other real estate classes have grown more expensive. In Toronto, the country’s largest office hub, investor demand has also increased, and office transactions rose to $473-million in the third quarter, up from $349-million in the first, but still not as high as Montreal.

Until this past spring, real estate investors had favoured apartment buildings, land, warehouses and industrial properties. Purchases of industrial real estate, land and apartment buildings were the top transactions in Montreal, Toronto, Vancouver, Edmonton, Calgary and Halifax.

The pandemic’s stay-at-home requirements forced consumers to shop for much of their products online. That quickened the shift toward e-commerce and increased retailers’ need for large warehouses to store products before shipping them to consumers’ homes.

But Mr. Speirs said the competition for industrial properties has pushed up prices to the point where it is harder for buyers to eke out a profit. As well, Montreal office buildings are still relatively cheap compared with office towers in Toronto, and investors see an economic revival in Montreal.

“Investors are taking a long-term view,” he said. “There is a sense that Montreal still has significant growth potential.”

In the third quarter, the volume of office transactions in Montreal topped industrial real estate deals in the city, according to CBRE.

The recent uptick in office deals will help push the national deal volume to a record $50-billion this year, the firm forecasts.

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