Trump's tariffs continue to pose a threat – but the underlying health of the commercial space looks strong
US president Donald Trump’s tariffs have upended the outlook for Canada’s mortgage space in 2025, pouring cold water over a hoped-for market revival in the opening months of the year and heightening fears that a sharp economic downturn could be on the way.
But while there remains plenty of uncertainty about how the economy will absorb the shock of that trade war – and what shape US tariffs on Canada will take in the long term – a silver lining for the commercial sector is that its foundations appear strong as it prepares to weather the coming turbulence.
That much is clear from Crete Capital’s recent survey of British Columbia-based lenders in a report that compiled insights from banking giants, credit unions, and larger private lenders. It reflected a robust 2024 commercial market, even despite the well-publicized travails of the office space, and growing lender bullishness before the US tariffs loomed into view.
“The main takeaway was that 2024 was definitely a busier year than the previous year,” Joey Tai (pictured top), Crete Capital’s managing partner, told Canadian Mortgage Professional. “In 2024, 91% of surveyed lenders met their budgets. If you compare that to 2023, only 55% had met their budgets. So 2023 was a slower year, but 2024 was definitely a busier year.”
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Rate cuts a key driver of stronger commercial mortgage market
The Bank of Canada hiked interest rates throughout much of 2022 and 2023 in a bid to curb runaway inflation, spiking borrowing costs in a series of moves that tapped the brakes on plenty of residential and commercial mortgage market activity.
But last June, it introduced its first interest rate reduction for over four years, the first in a flurry of cuts that would see its benchmark rate eventually fall seven times before a pause was announced last week.
Tai said an uptick in commercial activity last year coincided with the beginning of the central bank’s rate cuts. “Transactions started in the second half of the calendar year, Q3 and Q4. That just conveniently lands within the [start of] the interest rate cuts,” he said.
“It aligns very closely in terms of the transaction activity that we saw and the cost of capital coming down, starting in the summer of 2024. We also saw the bond market compress as well, and that’s related to fixed financing. Fixed rates were down, floating rates were down, and I think that helped facilitate some of the lending and transactions in the market.”
It remains to be seen whether that deal volume will take a hit from Trump’s tariffs – but at time of survey, before the threat of the trade war arrived, over half (58%) of lender respondents indicated they expected even higher activity this year.
Alternative lending growth continues to gather pace
The survey showed both conventional and private lenders posted stronger performances in 2024 than the previous year, with the alternative credit market jumping by 26% compared with 2023.
“The alternative market grew because there was a segment of the business and investors out there that gave into cashflow constraints and needed a bit of a reset in terms of restructuring,” Tai said. “When groups, businesses, and investors can’t get access to conventional financing or are [struggling with] their financial covenants, if you’re offside for a couple of years, [conventional lenders] will typically start looking to offboard. That’s where the alternative credit market comes in, bridge lenders.
“I think the reason we saw more funding from the alternative space in 2024 is that these businesses probably started feeling the impact coming out of COVID and they felt it for a couple of years. When we landed in 2024, that was the time where they needed to exit and find a bridge. But that was an interesting takeaway, that you saw more activity in both conventional and alternative lending.”
The expectation for higher volumes this year is a positive sign, Tai added, even amid trade chaos that looks set to rumble on throughout the year. Most lenders surveyed by Crete, meanwhile, expect the Bank to remain in cutting mode throughout 2025 – potentially fuelling the commercial market even further.
“A majority of our surveyors expect continued cuts this year and they’re expecting to put more money out to the market,” he said. “That’s a relatively healthy sentiment for commercial lending in BC. Obviously, the trade conversations about tariffs will make an impact on that, but that aside, it’s a healthy sentiment. It’s definitely optimistic but cautious for 2025 in terms of commercial lending.”
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