Interest rate cuts are anticipated to deliver a boost to the industry, but resilience is built through a long-term focus on creating value
This article was produced in partnership with Equiton.
With interest rates trending downward and more reductions expected in 2025, the Canadian real estate market appears poised for growth. According to Geoff Lang, senior vice president at Equiton, the real estate companies best positioned to benefit are those who have already laid a strong foundation during recent economic challenges.
“There’s no denying that 2025 is going to be a completely different year for everyone in the industry,” says Lang. “However, for some firms, 2024 was a year spent sitting on the sidelines, hoping for rate cuts. At Equiton, we aren’t satisfied waiting for rate cuts to happen to us — our growth strategy is designed to consistently capture value in all types of markets, regardless of rate conditions. We take a proactive, disciplined approach that balances strategic acquisitions, conservative financing, and operational efficiencies.”
Companies like Equiton have successfully navigated the economic environment of recent years to continue rewarding investors. During this time, issues such as reduced credit availability, lingering uncertainty around cap rates, and high interest rates forced some Canadian real estate companies to put a pause on growth expectations.
Falling interest rates add to market momentum
The Bank of Canada’s interest rate cuts are a major catalyst for the real estate market in 2025. As borrowing costs decrease, investment activity is expected to pick up, especially in multifamily housing, logistics, and industrial sectors. “Cap rates typically trail interest rates by six to eight months,” Lang explains. “In 2024, we saw cap rates rise. Now, with rate cuts taking effect, we expect cap rates to decline as property values and the overall market improve.”
Lang also notes that affordability remains a challenge for homebuyers, even in a lower-rate environment. “Just because rates are cut doesn’t mean everyone can suddenly buy a home. It’s still difficult to get that down payment. That’s why rental demand will remain strong. Our average rent is below the market average due to our portfolio’s gap to market at 35.1% as of the third quarter of 2024. Even if rents decrease, we have room to grow.”
Purpose-built rental housing: A bright spot amid challenges
The upward trajectory of purpose-built rentals is driven by a convergence of factors. Canada’s population growth has accelerated in recent years, fuelled by record immigration levels, putting immense pressure on the housing market. At the same time, much of the country’s rental stock consists of aging buildings that have fallen behind modern standards. Housing affordability has worsened, pushing more Canadians into the rental market as homeownership becomes increasingly out of reach.
Additionally, an aging renter profile and growing preference for urban living have increased demand for well-located, professionally managed accommodations. These dynamics have created a robust foundation for rental housing demand, offering investors a steady stream of opportunities.
Lang notes that Equiton focuses on this winning category, which has a proven track record of providing strong, stable returns for investors. “We hold a strategic mix of newer builds and value-add properties,” he explains. “Value-add gives us the opportunity to do what we do best: renovate units and make our buildings attractive places to live. Organic growth like this is far less dependent on market conditions to create value.”
The Canada Mortgage and Housing Corporation (CMHC) anticipates a wave of purpose-built rental completions in the coming years, driven by projects initiated between 2021 and 2023. However, even a record level of new completions will fall far short of expected demand, keeping rental markets tight and vacancy rates low. For investors, this environment supports stable cash flows and long-term growth potential.
Finding opportunities in a downturn
The financing conditions and slow pace of transactions in recent years created opportunities for well-capitalized real estate firms to grow, including the chance to make property acquisitions during a period of reduced competition.
In 2024, Equiton added eight buildings to its portfolio. In Toronto, the company purchased three rental buildings and a set of three-storey townhomes in the sought-after Forest Hill neighbourhood, representing strong potential for enhanced cash flow. Elsewhere in the Greater Golden Horseshoe, Equiton acquired a four-building group of rental properties in Welland, Ontario, overlooking the city’s namesake canal. There, Equiton identified an opportunity to create value by leveraging the buildings’ healthy gap to market over the long term. That said, falling rates have already made a positive impact.
“Welland was a special one for us,” Lang shares. “We purchased four buildings, which were reappraised almost immediately, reflecting a 9% increase in value. This was a win-win deal, and we’ve already started giving these buildings the Equiton treatment to enhance them for residents.”
Lang emphasizes the importance of maintaining disciplined due diligence, regardless of market conditions. “Apartment Fund hit $1 billion in assets under management (AUM) in 2024 and as of Oct 31, 2024, its at $1.2 billion. But no matter how much we grow, our methodology won’t change. We’re focused on building selective portfolios with good occupancy rates and upside for investors while taking care of our residents.”
Looking forward to 2025
As 2025 unfolds, the Canadian real estate market is expected to move into a new phase of growth and opportunity. With its strategic foresight, resident-first management, and disciplined acquisitions strategy, Equiton is well-positioned to prosper in this dynamic environment.
Equiton’s geographic strategy for the coming year includes a strong focus on the Greater Toronto Area (GTA) and secondary markets like Guelph, Kitchener-Waterloo, and Hamilton. “These areas have seen significant population growth, especially as Canada welcomes new residents and more people move out of downtown Toronto,” Lang notes.
The company is also exploring opportunities in Alberta and British Columbia, signalling a desire to expand its footprint nationally. “We’re bullish on the B.C. market and want to make our presence known across Canada. I wouldn’t be surprised if we added new provinces to our portfolio in 2025,” says Lang.
For investors considering reallocating their portfolios, Lang underscores the importance of income-generating alternatives. “2025 is a good time to lock in equity gains and shift to assets like multifamily real estate, REITs, or dividend-paying stocks. These provide consistent cash flow and resilience across market cycles.”
Even in the face of potential economic slowdowns, Lang remains confident in Equiton’s approach. “We have cash on hand to acquire properties, which gives us a competitive edge. While more bidders may enter the market as rates drop, our strategy won’t change. We’ll stay disciplined but may need to be more aggressive to compete.”
Reflecting on the past year, Lang expresses gratitude for investor trust during a challenging period. “Our company has grown stronger despite the challenges of the past year, and we are moving forward with optimism. Long overdue rate cuts are here, and multifamily remains one of Canada’s most attractive asset classes. With the country’s growing population and persistent housing demand, the future looks bright.”
