Stabilizing rates and shifting demographics pave the way for recovery
The Canadian commercial real estate (CRE) market is inching toward recovery in 2025, but patience will still be needed as economic and geopolitical uncertainties linger.
Peter Norman, chief economist of Altus Group, highlighted the unusual effects of Canada’s surging population growth, which now exceeds 1.2 million annually – nearly three times the pre-pandemic norm.
This rapid demographic shift, driven by immigration, is reshaping housing demand, particularly in Ontario and Quebec, where starter housing is expected to decline while demand for condos and senior-oriented properties grows steadily.
“Inflation has been unwinding significantly since its peak,” Norman said, pointing to sharp interest rate adjustments since 2022 as a key factor. With the Bank of Canada’s rate projected to stabilize around 2.5% and mortgage rates declining, housing demand may see a rebound by late 2025. Despite economic softness, strong employment levels and modest GDP growth of 1.8% are expected to support recovery.
Ray Wong, vice president of client delivery at Altus, noted improvements in key CRE sectors, including office occupancy, warehouse demand, and retail rents. However, he cautioned that geopolitical uncertainties and the US regime change pose risks.
Toronto and Vancouver are seeing renewed interest from private investors, with Alberta also attracting attention. Tight supply in food-anchored retail strips, industrial properties, and multi-residential sectors is driving competition. However, the bid-ask gap between buyers and sellers continues to impede transactions, underscoring the need for further market stabilization.
“Noise in the marketplace is causing some delay,” Wong said in the report.
Polls conducted during Altus Group’s recent webinar showed that 37% of respondents view further interest rate cuts as critical to unlocking CRE activity, while 27% cited economic improvements as key.
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Alternative asset classes like data centers, student housing, and senior housing are gaining traction, driven by high yield potential and lower replacement costs. Speculative industrial construction is also expanding, with newer facilities and strategic locations attracting demand.
The office sector, while mixed, is showing signs of improvement, particularly for Class A properties. Vancouver is leading the recovery, with potential space shortages projected within the next 3–5 years. Meanwhile, retail activity may benefit from controlled inflation, though consumer spending remains a wildcard.
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