Moderator Fred Cassano, national real estate tax leader, PwC Canada; and panelists Janet Chung, director, real estate investment, CPP Investments; Veronica Maggisano, vice president, development, Oxford Properties Group; Pouyan Safapour, president, Devron Developments; and Peter Senst, president, Canadian capital markets, national investment team, CBRE speak to a crowd of more than 400 real estate experts at ULI Toronto: Annual Trends in Real Estate held at the Fairmont Royal York.
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Canada’s real estate market is in the midst of a pivotal shift as the Bank of Canada (BoC) rolls back what has been “higher for longer” interest rates. Yet, despite welcome relief on financing costs, real estate leaders are still moving somewhat cautiously amid uncertainty and fluid market dynamics.
A crowd of more than 400 real estate leaders attended ULI Toronto: Annual Trends in Real Estate held at the Fairmont Royal York. ULI’s Emerging Trends in Real Estate® United States and Canada 2025 provides market insights to help real estate leaders navigate the year ahead. Against that backdrop, Emerging Trends in Real Estate® United States and Canada 2025 provides valuable insights to help real estate leaders navigate the year ahead. Last year, the Canadian real estate market was shaped by four main issues—geopolitical uncertainty, rising interest rates, high inflation, and a period of price discovery. “All of these factors made asset valuation much more difficult, which led to this period of price discovery where things were pretty much locked,” says Frank Magliocco, national leader for private clients at PwC Canada.
What’s ahead for this year? The answers to that question remain highly nuanced. The Emerging Trends in Real Estate® 2025 for the Canadian market reveals a mixed outlook that varies, depending on the region, the asset class, and the investment strategy. Now in its 46th edition, this forecasting report, published by ULI and PwC, highlights key market trends, favored locations, and property sector opportunities.
Mixed opinions on the Canadian real estate market outlook are reflected in the Emerging Trends Barometer. On a scale of 1 to 5, with 1 being “abysmal” and 5 being “excellent,” views from survey respondents on plans to buy, sell, or hold real estate all converged somewhere in the middle at “fair.” Survey results also highlight continued challenges ahead, along with pockets of optimism.
“We’re off the floor, so to speak” says Peter Senst, president of Canadian capital markets, national investment team with CBRE. Although conditions are far from perfect, confidence is improving, sentiment is moving in a positive direction, and transaction activity is picking up, he adds. “Canada looks different because we overperform at the bottom of the cycle. We don’t overbuild and we don’t over-borrow the way that other countries do,” he says. “So, I’m excited, going into 2025, about most business lines, although there are things that are still really challenged.” Senst was one of four panelists who discussed market trends at ULI Toronto’s 20th-anniversary Annual Trends in Real Estate 2025 presentation.
Shifting economic backdrop
The Canadian economy provides important context for the report. The good news is that Canada’s fight against inflation appears to be won. As of November 2024, the country’s consumer price index (CPI) was at 1.9 percent, and financial services firm RBC is forecasting that inflation is likely to stay below 2 percent in 2025.
Signs that inflation is under control sparked a major shift in monetary policy. Since June, the BoC has cut interest rates five times, dropping its benchmark interest rate from 5 percent to 3.25 percent as of year-end 2024. RBC is anticipating that the BoC will maintain its aggressive rate-cutting stance in 2025, with the benchmark rate probably hitting 2 percent by the middle of the year.
Rate cuts successfully cooled the economy with GDP growth dropping to a tepid 1.5 percent. “The only reason that Canada’s economy did not tip into recession is because we’ve had tremendous growth in the population, entirely fueled by immigration,” says Robert Hogue, assistant chief economist at RBC. According to Hogue, Canada’s population growth rate, at roughly 3 percent, is something the country has not seen in six decades. Although the population growth helped fuel the economy, it has put added strain on infrastructure, including schools, hospitals, and housing.
Population growth will be a key issue for the economy in both 2025 and 2026, with a new immigration policy expected to result in a sharp decline in growth. Effectively, the country’s demographics are now shifting from a tailwind to a headwind, Hogue notes. That means Canada will have to work harder to increase productivity for its economy to grow. Canada also is keeping a close watch on new policy initiatives from incoming U.S. president Donald Trump and a Republican-controlled Congress. The United States is Canada’s largest trading partner, and potential tariffs could have big repercussions on the Canadian economy and on demand for real estate.
Top trends in 2025
The research and interviews conducted for the Emerging Trends report touched on a variety of topics ranging from surging interest in data centers to the future of hybrid work. “When you cut through all of [these issues], many believe that there is a new real estate cycle that is going to begin with capital markets starting to recover, inflation and interest rates trending down, and findings that the bid-ask on assets were starting to narrow a little bit,” says Magliocco. Combined, all of those factors could encourage investors to move off the sidelines in 2025, he adds.
According to the Emerging Trends report, three key trends at the forefront for 2025 are:
- Unlocking value amid deal and capital constraints
- Tackling the complex housing affordability crisis
- Building a sustainability and climate resilience strategy for the future
The annual list of markets to watch held some surprises, with Calgary moving up to the number one spot, followed by Vancouver and Toronto.
Overall, capital is coming back to the market. “The idea of interest rates coming down means GICs [guaranteed investment certificates] are coming down. That capital has to find a home, and real estate as an asset class still looks good,” says Senst. As an example, CBRE brokered 12 office property sales in Calgary last year. “That doesn’t sound like a big number, but in the context of how tough the office market is, that’s seismic,” Senst says.
According to Senst, roughly 50 cents of every investable dollar ends up in Toronto, in large part because the Toronto metro offers large-scale deals that many big investors require. Yet investor interest in Calgary and the Alberta market is now “palpable,” Senst notes, with investors looking for value. Investors who want more of a yield play and more alpha also are looking at Montreal, while Vancouver is experiencing a return of offshore capital, he adds.
Trend 1: Unlocking value amid deal and capital constraints
Private investors, especially family offices and private equity funds, are expected to emerge as the most active buyers in 2025, filling the void left by pension funds, insurance companies, and REITs. A shrinking pool of domestic buyers has resulted in expanding opportunities for foreign investment, notably with capital coming out of the U.S. and Western Europe. Although access to capital is still challenging, the Emerging Trends report shows that real estate leaders do anticipate some improvement in access to capital in 2025.
“Declining interest rates are great for the Canadian economy and really good for the real estate industry. So, we’re certainly moving in the right direction,” says Veronica Maggisano, vice president of development with Oxford Properties Group. The company is getting set to break ground on a couple of major Canadian development projects in the next two years. It also is finding opportunities to create value at existing assets. For example, where Oxford Properties is developing purpose-built rental projects at its mall sites, the firm is looking at shared parking with the malls’ parking fields, which allow it to build less underground or on-site parking for the new housing.
In terms of asset classes, purpose-built rental housing has risen to become the best bet for 2025, thanks to its solid fundamentals and long-term outlook, according to the Emerging Trends report. Although some of the frothy investor interest has come out of the industrial market, the sector remains healthy, with slowing construction activity expected to help stabilize fundamentals. Investor attention also is shifting to alternatives and subsectors, with data centers, student housing, medical office, and single-family rentals topping the list.
CPP Investments is constantly evaluating shifting market conditions and where to achieve the best risk-adjusted returns around the globe. As with many investors, its portfolio allocations are changing. “Our portfolio might look a little bit different than what we’re used to, and that’s really to adapt to how we see the world changing,” says Janet Chung, director of real estate investments with CPP Investments. For example, the changing digital landscape is prompting more investment in data centers. “There are tweaks and changes, and we’re trying to adapt, because we look for growth and value,” she says. “But, ultimately, we still see lots of value in Canada, and we see lots of value in the real estate sector.”
Trend 2: Tackling the complex affordability crisis
Housing affordability remains a critical issue, with the costs of both buying and renting reaching unsustainable levels for many Canadians. Numerous variables are contributing to the affordability problem, from the regulatory environment to high land and construction costs, among other factors.
Although local governments have announced policy measures aimed at increasing supply, industry players believe that more comprehensive efforts are needed to tackle this complex challenge. “It shouldn’t be a surprise that we need alignment and a really coordinated response by all levels of government,” says Magliocco. Innovation in the building industry is another important part of the solution, he adds.
The affordability crisis has been further exacerbated by the frozen condo market. There is a perception that declining interest rates will create a thaw in condo sales. “That’s really fundamentally missing the point that we actually have a broken system of designing buildings and selling condos,” notes Pouyan Safapour, president of Devon Developments.
The recovery in the condo market is likely to take more time, and it will be important to examine why it is broken and what major changes will be required to fix it, he adds. Some of the necessary changes relate specifically to problems with traditional preconstruction financing and preconstruction sales.
Affordability is an issue affecting both residential and commercial developers. Collectively, the real estate development industry has been working to address existing hurdles related to long lead times in getting project approvals, which adds to costs. “I don’t think we can take our foot off the pedal on this at all. We need to really keep going, because when costs are accelerating at the pace that they’re at, time is literally money now,” Maggisano says. “So, we’ve got to be more efficient in how quickly we can get shovels in the ground.”
Trend 3: Building a sustainability and climate resilience strategy for the future
The Emerging Trends report reveals a big divide among Canadian real estate companies that see sustainability and climate resilience as a “tick the box” compliance exercise versus ones that recognize decarbonization as a crucial strategy in reducing risk and preserving the value of their assets. Sentiment that sustainability is a “nice to have” for compliance versus a “must have” was surprising to panelists.
Decarbonization is at the forefront for Oxford Properties. “We are challenged [in] that, if it’s not going to be net zero from day one, we have to have that plan that tells us how we’re going to get there in the short to medium term,” says Maggisano. The company also has invested in a tool that screens its portfolio to identify potential physical climate risks for specific assets.
Physical risk to assets in the face of more extreme weather events is also gaining more attention. “A lot of our focus for the last decade has been on the decarbonization side. This framework is in place, and we take it very seriously,” Chung says. The firm takes a methodical approach to decarbonization across its large portfolio and prioritizes changes that can have the most impact. “What’s really accelerated recently is the physical risk side,” she says. Historical data and modeling that used to show storms that were coming once in 100 years are now coming more frequently—maybe once in 75 years, or 50, or 25. So, as historical models no longer remain good predictors of the future, it’s important to take a more proactive approach to asset risk, adds Chung.
