Commercial real estate company predicts a bright outlook for Canada’s market in 2025

Infrastructure

CBRE report anticipates investment in the sector will hit $48 billion next year

By

Jacqueline So

Dec 11, 2024

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Canada’s commercial real estate market is gaining momentum going into 2025, reports Commercial Real Estate Services in its Canada Real Estate Market Outlook report.

Factors behind this momentum include an expected uptick in overall leasing and sales activity as well as the potential positive impact of significant merger and acquisition activity.

“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’s 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.”

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Commercial real estate company predicts a bright outlook for Canada’s market in 2025

The report highlighted four key market sectors that are performing well: office, industrial, retail, and multifamily. The office market is stabilizing, and the industrial sector is softening as the fundamentals of the retail and multifamily sectors stay robust.

Despite differences in property types, institutional capital is set to return and infuse the market with increased liquidity. This is expected to help drive commercial real estate investment volumes to $48 billion on estimate next year.

CBRE broke down the 2025 forecast for each sector as follows:

Office

Vacancy rates are projected to peak in early 2025 as suggested by previous and current market fundamentals, with signs of increasing market confidence and occupiers returning to a growth mindset.
A progressive split in office products focusing on “flight-to-experience” and a slowdown in office construction activity is expected to result in an undersupply of modern, amenity-rich spaces needed by office tenants.
The factors behind tenants’ real estate decisions have been refined, with high-quality offices in lively locations set to draw tenants and tighten vacancies.
The development pipeline is anticipated to ease up in 2025 – construction levels have dipped to a 20-year low and the final tranche of deliveries is expected next year. This is set to turn the market around, reducing volatility while resulting in a long-term undersupply of modern buildings.

Retail

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Restricted retail construction will lead to a landscape with reduced supply, with low vacancies and increasing rent rates particularly with fixtured units.
Rising construction costs have constrained developers’ building activity. High demand in the face of low supply is expected to drive vacancies down and cause rents to tick up.
Retailers are set to expand into secondary markets or adjust typical store scales in the coming year. The average new retail construction project or phase is currently 35,000 sq. ft. – almost half of what it was three years ago.
The government’s plans to limit immigration could put pressure on retailers, particularly in the face of economic challenges and a potential drop in customer spending. Value channels like second-hand or consignment stores are expected to stay popular.

Industrial

The industrial market is seeing higher availability due to softer demand and a surge in new supply.
Logistics companies and retailers are reducing the space they took on during the 2020-2023 expansion, realizing their capacity.
Retailers and 3PL’s have slumped overall, but nationwide, the food and beverage sector and data centres are active. Moreover, demand from local groups in Alberta is increasing due to economic strength.
Construction projects set for “demisability” are set for a better year ahead, while other projects are expected to pause during foundation work while awaiting tenants.

Multifamily

Multifamily properties are set to experience greater downward pressure due to an influx of new supply and moderated population growth forecasts. In particular, rents for new units face the highest risk of dropping as a result of high vacancy rates and incoming short-term supply.
Housing affordability remains an issue in Canada, and the market still sees pent-up demand even though immigration restrictions and slight drops in population over 2025-2026 could reduce aggregate rental housing demand.
The rental market will still see low vacancy rates with support from long-term fundamentals.
The recent surge of new supply in Vancouver and Toronto is exacerbating challenges in the condominium