Canadian Commercial Real Estate Investment Could Total $48 billion in 2025: CBRE

According to CBRE’s Canada Real Estate Market Outlook, momentum is building in the Canadian commercial real estate investment market, the cost of capital crisis is easing, and investment capital will be drawn off the sidelines in 2025.

The report also noted that office market is stabilizing, the industrial sector is softening, and that retail and multi-family fundamentals remain strong.

Institutional capital is expected to return and inject further liquidity into the market which will help push commercial real estate investment volumes to an estimated $48 billion in 2025, although significant merger and acquisition activity could push this total even higher.

“The future of commercial real estate is much brighter than what the doomscrollers would have you believe. Each new completed transaction will provide fresh pricing datapoints that should help narrow buyer and seller expectations,” said CBRE Canada chairman Paul Morassutti. “Safe, secure Canada is about to look even better in a volatile global context. That comparison plus new price floors and ceilings over the first half of 2025 will give investors greater confidence in pursuing their real estate strategies.”

In terms of market fundamentals, past and current suggest vacancy should peak in early 2025. The office market is also showcasing more confidence, with occupiers shifting back into a growth mindset.

Additional bifurcation of office product with a focus on “flight-to-experience” as well as a slowdown in construction activity, is expected to lead to an under-supply of modern, amenitized buildings. The report noted that tenants have become more “refined” in terms of what’s driving their real estate decisions, and high-quality offices in vibrant locations will continue to attract tenant interest.

A muted development pipeline is also expected next year, with construction levels at a 20-year low and the last portion of deliveries coming next year. CBRE noted that this will be a turning point for the market, since it will help reduce volatility in the near-term while leading to an under-supply of modern buildings over the long-term.

Limited new retail construction will result in a supply-constrained retail landscape in Canada, with low vacancy and rising rents, particularly among fixtured units. Elevated construction costs are limiting developers from building, and strong demand should continue to put pressure on vacancy and rents.

In 2025, more retailers are expected to expand into secondary markets or modify the scale of their typical store in the year ahead. The average new retail construction project or phase is 35,000 sq. ft., which is almost 50 per cent smaller than three years ago. This smaller format will also reshape what the typical store looks like.

The report noted that government plans to curtail immigration could result in a challenging year for retailers. However, value or discount channels, including second-hand or consignment stores, will continue to be popular.

In terms of the industrial market, it is experiencing headwinds after a period of fast expansion. Softer demand amid an influx of new supply has resulted in additional availability.

Logistics companies and retailers are also finding that they don’t need to take on more industrial space.

According to CBRE, construction projects where “demisability” was planned for will fare better in 2025, with others likely to drop off or stall at foundation work waiting to secure a tenant.

The multi-family market will face increased downside pressure amid more new supply and weaker population growth forecasts. Rents for newly built units are at risk for decreases as a result of higher vacancy rates.

Long-term fundamentals will continue to support low vacancy rates in the rental market. In cities such as Toronto and Vancouver, challenges facing the condominium markets are being further exacerbated as a result of the recent influx of new supply, a steep slowdown in sales activity as well as a growing number of projects falling into receivership.