The Canadian Commercial Real Estate Market: Signs of Recovery in 2025

As we move into 2025, the Canadian commercial real estate market is showing promising signs of recovery, driven by a combination of stabilizing economic conditions, shifting investor sentiment, and sector-specific trends. Here’s a detailed look at the factors contributing to this recovery and what they mean for the industry.

Stabilizing Interest Rates

The Bank of Canada has been gradually reducing interest rates, with projections indicating stabilization around 2.5% by the end of 2025. This decline in borrowing costs is expected to have a significant impact on the market. Lower interest rates make financing more accessible, encouraging both institutional and private investors to re-enter the market. As borrowing becomes more affordable, investment activity across various sectors is likely to gain momentum, further supporting the recovery.

Improved Investor Confidence

Investor sentiment has started to shift positively as economic conditions stabilize. The outlook for 2025 suggests increased activity across multiple segments of the commercial real estate market. This renewed confidence is crucial in driving transactions and fostering long-term growth in the sector. Investors are particularly optimistic about the performance of multi-family and industrial real estate, which continue to outperform other asset classes.

Sector-Specific Recovery Trends

Recovery patterns vary across different sectors, reflecting unique challenges and opportunities:

  1. Multi-Family and Industrial Real Estate: These sectors are leading the recovery, driven by strong demand and tight supply. Multi-family housing remains a top choice for investors due to Canada’s robust population growth, while industrial properties are benefiting from the expansion of e-commerce and logistics operations.
  2. Retail and Office Sectors: While these sectors faced significant challenges during the pandemic, they are showing signs of improvement. Food-anchored retail strips are attracting increased interest due to their resilience and stable cash flows. Meanwhile, the office sector is slowly recovering, with companies adapting hybrid work models and seeking flexible office solutions.
  3. Tight Supply: Industrial properties and food-anchored retail spaces are experiencing limited availability, intensifying competition among investors. This trend highlights the need for strategic acquisitions and creative development solutions.

Regional Variations

Market dynamics differ significantly across Canada’s regions:

These regional variations underline the importance of localized strategies for investors looking to capitalize on emerging opportunities.

Increasing Transaction Activity

Transaction volumes are steadily rising, with Toronto and Montreal leading the way. Mid-sized investment deals are expected to drive this rebound, as investors prioritize manageable risk levels and scalable opportunities. The increase in sales activity reflects growing confidence in the market’s resilience and potential for growth.

Population Growth and Housing Demand

Canada’s population is growing at an unprecedented rate, exceeding 1.2 million annually. This rapid growth is reshaping housing demand and fueling optimism in the real estate market. The resulting pressure on housing supply is pushing investors to explore multi-family developments and mixed-use projects to meet evolving needs.

A Note of Cautious Optimism

While the recovery is evident, it remains gradual and uneven across sectors and regions. Economic and geopolitical uncertainties still pose challenges, and the bid-ask gap between buyers and sellers is slowing some transactions. Patience and adaptability will be key for investors navigating these complexities.

The Canadian commercial real estate market in 2025 offers a mix of opportunities and challenges. Stabilizing interest rates, sector-specific growth, regional dynamics, and population-driven demand are setting the stage for a resilient recovery. However, industry professionals must remain vigilant, leveraging market insights and staying flexible to adapt to ongoing changes. With cautious optimism, the year ahead holds significant potential for those ready to embrace the evolving landscape.

Sources:

https://www.mpamag.com/ca/news/general/canadian-commercial-real-estate-recovery-requires-patience-says-report/517192

https://www.mpamag.com/ca/news/general/is-commercial-real-estate-making-a-comeback/497553

https://royalyorkpropertymanagement.ca/news-article/canadian-real-estate-market-poised-for-growth-in-2025-experts-predict-renewed-investor-interest

https://www.cbre.ca/insights/articles/setting-the-stage-for-a-real-estate-recovery-in-2024

https://www.kelownarealestate.com/blog-posts/real-estate-trends-in-canada-for-2025-insights-from-ulis-annual-report

https://www.newswire.ca/news-releases/shifting-demand-in-canadian-commercial-real-estate-market-driven-by-housing-crisis-population-growth-and-the-need-for-greater-density-says-re-max-829178358.html

https://www.weforum.org/stories/2025/01/2025-pivotal-year-market-recovery-commercial-real-estate/

https://www.cbre.ca/insights/books/canada-real-estate-market-outlook-2025