INTRODUCTION

We are currently experiencing uncertainty in today’s economy. We will respond to the challenges of the upcoming year using similar innovative strategies as our preceding years, through DTZ Barnicke’s core values: teamwork, integrity, service excellence, creativity, enjoyment and the drive to make it happen.

The greatest histories are always written in the toughest times. We believe that we’re in the midst of writing some bold new chapters in our business’s long-running success story. We will emerge stronger in these difficult global times by focusing on the future.

Market Overview
Montréal’s economy expanded by 0.7% in 2008, marking its slowest year of growth compared to the last five years. Ongoing decline in the manufacturing sector has been brought on by slowing demand from a receding global economy and a stronger Canadian dollar. Fortunately, Montréal’s reputation for R&D performance continues to support the economy, generating growth in the life sciences, information technology, telecommunications, and professional services industries.

The aerospace industry remains an exceptional performer in the manufacturing sector. Companies like Bombardier are experiencing tremendous growth due to growing demand from emerging markets like China despite the global economic turmoil. Bombardier is attracting significant demand for its CSeries planes, which are assembled at the Mirabel Airport, outside of Montréal.

Also driving the economy in Montréal is investment in infrastructure, healthcare and tourism, including $3.6 billion on various hospitals; $1.5 billion on the Turcot interchange; $750 million on the Notre-Dame Street modernization project; and $1.9 billion on the Quartier des spectacles project. Non-residential construction and a slight revitalization in manufacturing due to a weakened dollar are expected to boost GDP growth to 1.1% in 2009.

Office
Over the last few years the Montréal market has seen a steady decline in the office space vacancy rate. Tenants have been challenged with the negotiations of favorable transactions for their office premise: We have been experiencing a Landlord’s market.

The economic crisis, which tumbled the global financial markets, is starting to affect the Montréal corporate real estate market.

After several years of declining vacancy and increased rental rates, the Montréal market is now seeing the actual vacancy rates begin to rise at a rapid rate. Moreover, construction projects in the works are on the verge of completion.

Since the beginning of 2009, rental rates have ceased to increase and are in fact should be expected to decrease from 10 to 15 % by the end of this year. Evidently, most service based companies are no longer seeking expansion in fact many will be reducing their work force; this will bring forth a significant increase in the sublet market. Overall, these factors result in an increase of space available on the market, as we are currently experiencing.

These tendencies, being experienced, will cause a re-equilibrium of the market. Tenants will now have a greater choice of options whether it is direct space or sublet space.

Industrial
Although it took Canada longer to feel the slowdown of the global economic recession, we are now experiencing the associated effects. Despite the fact that the Canadian commercial real estate markets remained more stable than our UK, European, and American counterparts, the majority of regional markets throughout the country are experiencing troubling economic times. This is especially evident in the Toronto and Western Canadian markets.

Montréal is faring better than other major Canadian cities. As a whole, Montréal’s commercial real estate market did not climb as high during recent prosperous years, thus has not fallen as dramatically. Activity in the fourth quarter of 2008 and beginning of 2009 slowed, however, pricing has remained stable. New industrial development grinded to a halt in the latter half of 2008 and the trend will likely continue throughout 2009. Vacancy rates are on the rise as most businesses have shifted their focus to stability and improving efficiencies as opposed to growth and expansion.

It is expected that the supply of industrial properties for sale will increase in 2009 as access to credit remains difficult with traditional financial institutions. The Montréal industrial real estate market is expected to experience low activity for the first half of 2009 with possible stabilization in the second half as many experts are forecasting the start of a recovery by the end of the year.

Investment
The 2008 investment climate for Montréal was not much different than the rest of Canada. While the beginning of the year was as equally active as 2007, with talks of demand exceeding supply, the second half of 2008 experienced a significant slowdown brought on by a shortage of accessible capital. The limited supply and high cost of capital has forced many investors to the sidelines and simultaneously forced vendors to sell some or all of their portfolios at reduced prices.

Cap rate compression trends reversed in 2008 and cap rates for all assets are expected to rise in 2009, with industrial space increasing the most and high quality office space the least. 2009 will be a challenge for vendors who were once used to the idea of sub 6% cap rates and a great buying opportunity for those with the cash or access to debt to buy product at reduced prices.

Retail
Despite slower economic growth and declining tourism spending brought on by a strengthened Canadian dollar, retail sales in Montréal grew by 4.0% in 2008, a 60 basis point increase over 2007. In 2009, retail sales are expected to increase once again then stabilize for the next three years.

Despite the strong sales numbers, the only new major retailer to the market was H&M, and little expansion occurred from international retailers. New retail developments such as Griffithtown and the highly anticipated Lac-Mirabel were both abandoned due to trouble securing financing. Also, the redevelopment of Champlain Mall has been suspended.

The growing consumer spending combined with a lack of international expansion and a halt in new developments is creating a lucrative environment for established retailers. There is now an excellent opportunity for local retailers to expand and capture market share. Expect stable sales per square foot in 2009 and rental rates to decline slightly as demand stems mainly from local retailers.