Canada’s real estate market is navigating a pivotal shift as the Bank of Canada (BoC) rolls back its aggressive interest rate hikes. Despite the welcome relief in financing costs, real estate leaders remain cautious due to lingering uncertainties and evolving market dynamics. This was the core theme at the ULI Toronto: Annual Trends in Real Estate event, attended by more than 400 real estate professionals at the Fairmont Royal York.
The Emerging Trends in Real Estate® United States and Canada 2025 report, published by ULI and PwC, offers valuable insights to help industry leaders navigate the year ahead. According to Frank Magliocco, national leader for private clients at PwC Canada, the Canadian real estate market in 2024 was shaped by geopolitical uncertainties, high inflation, rising interest rates, and a period of price discovery. The report’s forecast suggests a mixed outlook for 2025, with regional variations and shifts in asset classes driving diverse opportunities.
Market Outlook: Mixed Sentiment
Survey results from Emerging Trends show mixed opinions about the Canadian real estate market in 2025, with most respondents rating their outlook as “fair.” Despite challenges, investor sentiment is improving, with transaction activity picking up as conditions begin to stabilize. Peter Senst, president of Canadian capital markets at CBRE, stated that Canada tends to perform better at the bottom of the cycle compared to other countries, noting that while not perfect, the market is showing signs of improvement. “We’re off the floor, so to speak,” he added.
Shifting Economic Landscape
As of November 2024, Canada’s inflation rate had dropped to 1.9%, signaling a shift in the economic environment. The BoC has reduced interest rates five times since June 2024, with predictions that the benchmark rate will fall to 2% by mid-2025. These rate cuts helped cool the economy, with GDP growth slowing to 1.5%. The Canadian economy avoided a recession thanks to robust population growth, driven largely by immigration, but this has also strained infrastructure, particularly housing, schools, and hospitals. The country’s population growth rate of about 3%—a figure not seen in six decades—is expected to decline in the coming years, adding pressure on economic growth.
Key Trends to Watch in 2025
The Emerging Trends in Real Estate report highlights three major trends for 2025:
Unlocking Value Amid Deal and Capital Constraints
Real estate leaders are anticipating increased activity from private investors, especially family offices and private equity funds, who will fill the gap left by pension funds and REITs. Despite capital access remaining challenging, there is optimism that conditions will improve, especially as interest rates fall.
Tackling the Housing Affordability Crisis
Canada’s housing affordability remains a critical issue, with both buying and rental costs reaching unsustainable levels. Industry leaders stress that more coordinated policy efforts at all levels of government are necessary to address the crisis. At the same time, innovations in construction and land development are essential to alleviate the strain on supply.
Building Sustainability and Climate Resilience
Sustainability and climate resilience are now central to the real estate industry’s future strategy. Real estate firms, such as Oxford Properties, are increasingly prioritizing decarbonization and preparing their portfolios for the physical risks posed by climate change. As extreme weather events become more frequent, proactive risk management has become a crucial consideration for asset owners.
Regional and Sector-Specific Insights
For 2025, the top markets to watch are Calgary, Vancouver, and Toronto. Calgary, in particular, has risen to the top of the list due to increasing investor interest, particularly in office properties. Meanwhile, Toronto continues to attract a significant portion of the capital, owing to its large-scale investment opportunities. Montreal is also seeing interest, especially from investors seeking higher yields.
In terms of asset classes, purpose-built rental housing is expected to perform well, thanks to its solid fundamentals and long-term prospects. The industrial market, although somewhat cooled, remains robust, and there is growing interest in alternative sectors such as data centers, student housing, and medical offices.
Conclusion
The Canadian real estate market is poised for a year of transition in 2025, with improvements in capital access, declining interest rates, and continued population growth offering opportunities. However, industry leaders must remain mindful of the challenges presented by affordability issues and climate risk, while also addressing the shifting dynamics within various asset classes. Investors and developers will need to adapt to these changing conditions while keeping an eye on emerging opportunities in the market.
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