Experts see investment opportunities but warn of uncertainty as Canada braces for potential US tariffs
The Bank of Canada lowered its key policy rate by 25 basis points to 3 percent for the sixth consecutive time, a move widely expected by markets and economists, according to Bloomberg News.
However, the central bank provided no forward guidance on future rate changes, citing uncertainty over potential US tariffs.
The commercial real estate sector reacted with mixed expectations. While some experts anticipate renewed investment activity, others remain cautious about persistent economic challenges.
Kevin Meyler, partner and national leader of business restructuring and turnaround services at BDO Canada, said the rate cut was expected but noted that challenges in the sector remain.
“I think the impact is that there’s still a tremendous amount of uncertainty there. I think commercial real estate has been challenged for some time, so I think that this is kind of built into the pricing. I think commercial real estate is still going to have some headwinds and struggles,” he said.
Meyler pointed to multiple concerns affecting the industry, including consumer conditions in Canada and the uncertainty surrounding the US administration’s potential tariffs.
“Not only just the general state of consumers in Canada, but also the impact of (a) change in administration in the US, the tariffs, I think probably people are going to still be waiting a bit to understand more fully the impact of that,” he said.
Governor Tiff Macklem has worked to bring inflation within target levels, but he warned that a tariff war with the US could push inflation higher in Canada.
Mark Fieder, principal and president of Avison Young Canada, acknowledged the rate cut as “welcome news” for commercial real estate. However, he noted that many investors remain on the sidelines, observing economic conditions.
He also highlighted the risks posed by potential US tariffs, saying there is still “a degree of risk and uncertainty ahead due to the possibility of tariffs imposed on Canadian goods by the US”
Despite concerns, Fieder expressed optimism for a market rebound.
“We remain optimistic about a longer-term bull run going into the last half of the year, stimulating appetite and capital allocation in such asset classes as industrial and multi-family,” he said.
Meyler noted additional pressures in the sector, including high vacancy rates due to shifts toward hybrid work models since the COVID-19 pandemic.
While borrowing costs have eased, interest rates remain higher than pre-pandemic levels, making it difficult for some businesses to manage financing.
Meyler warned that ongoing tariff discussions and broader economic uncertainty could also weaken the retail sector if consumer confidence declines.
Adam Jacobs, head of research at Colliers Canada, observed that investors remain hesitant amid geopolitical uncertainty. “Many potential investors in the commercial real estate industry are taking a ‘wait-and-see approach’ amid the current geopolitical circumstances,” he said.
He noted that the market is seeing smaller deals, an increase in private investors, and “the return of owner-occupier purchases from governments and hospitals.” Jacobs also pointed out that despite multiple rate cuts, borrowing costs have not significantly changed in the past year.
“The commercial property investment market has come down from all-time highs in 2021-22, and now is at historically normal levels,” he said.
Michael Tsourounis, managing partner and chief investment officer at Hazelview Investments, remains positive about Canadian real estate, citing “favourable foundational fundamentals.” However, he acknowledged that higher short-term interest rates had weighed on property values.
Tsourounis said the rate cut will continue to support an improving investment landscape in Canadian commercial real estate.
“Lower borrowing costs will improve liquidity, and we anticipate increased transaction activity, especially in sectors like multi-family,” he stated, adding that it could also help improve conditions for adding much-needed housing supply.
Meyler noted that current market conditions present acquisition opportunities for well-capitalized firms. “There are a number of properties that are coming up for sale…because the still higher than normal interest rates might not make it economic for a weaker balance sheet company,” he said.
However, he added that companies with significant capital and patience could find acquisition opportunities.
Despite short- and medium-term challenges, Meyler urged investors to take a long-term perspective.
“I do think there’s a finite amount of real estate….I have to believe it will rebound. Historically it traditionally has. So, I do think it’s an opportunity. And I think if it’s priced right, they may want to look at it right,” he said.
While he expects a recovery, he remains uncertain about the future direction of real estate prices.
