C
anada's real estate market is undergoing a significant shift due to the Bank of Canada's (BoC) decision to roll back interest rates. Despite welcome relief on financing costs, real estate leaders are still cautious amid uncertainty and fluid market dynamics. A crowd of over 400 real estate experts attended ULI Toronto: Annual Trends in Real Estate held at the Fairmont Royal York.
The Emerging Trends in Real Estate United States and Canada 2025 report provides valuable insights to help real estate leaders navigate the year ahead. The Canadian real estate market was shaped by four main issues last year: 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.
This year's outlook is highly nuanced, with the Emerging Trends report revealing a mixed market that varies by region, asset class, and investment strategy. The report 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, where views converged at "fair" on a scale of 1 to 5.
Confidence is improving, sentiment is moving in a positive direction, and transaction activity is picking up, says Peter Senst, president of Canadian capital markets with CBRE. The Canadian economy provides important context for the report, with inflation under control and interest rates trending down. However, population growth will be a key issue for the economy in both 2025 and 2026.
The Emerging Trends report highlights three key trends for 2025: unlocking value amid deal and capital constraints, tackling the complex housing affordability crisis, and building a sustainability and climate resilience strategy for the future. Private investors are expected to emerge as the most active buyers in 2025, filling the void left by pension funds, insurance companies, and REITs.
Purpose-built rental housing has risen to become the best bet for 2025, thanks to its solid fundamentals and long-term outlook. Investor attention is shifting to alternatives and subsectors, with data centers, student housing, medical office, and single-family rentals topping the list. The affordability crisis remains a critical issue, with numerous variables contributing to the problem.
Industry players believe that more comprehensive efforts are needed to tackle this complex challenge. Innovation in the building industry is another important part of the solution. The recovery in the condo market is likely to take more time, and it will be essential to examine why it is broken and what major changes will be required to fix it.
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. Decarbonization is at the forefront for Oxford Properties, with the company investing in tools to identify potential physical climate risks for specific assets.
Physical risk to assets in the face of more extreme weather events is gaining more attention. The firm takes a methodical approach to decarbonization across its large portfolio and prioritizes changes that can have the most impact. Historical data and modeling are no longer good predictors of the future, making it essential to take a proactive approach to asset risk.
