Interest rates and the evolving real estate demands are shaping the investment landscape
The increasing normalization of interest rates will have a favourable impact on real estate investment trusts in the months ahead.
Rates are one of the key factors in a generally optimistic outlook for Canadian REITS from Skyline, a Canadian capital management company that offers private alternative investments in real estate and clean energy.
The past few years have required funds to ensure stability and resilience as multiple factors have challenges their performance.
“While we’re confident in a more stable environment in 2025 should US-Canada trade relations stabilize, we remain vigilant of any potential impact from national and international events,” said Wayne Byrd, Skyline’s CFO.
The year ahead will be shaped by both challenges and opportunities, but expectation that the Bank of Canada will further cut interest rates is one of the most compelling, given the reduction of financing costs and improvement in borrowing conditions.
However, the potential for the Canadian economy to be negatively impacted by US trade tariffs is a central concern, particularly the risk of recession or surging inflation. Current expectation of inflation at 2.3% is good for REITS which typically perform best in mid-range inflation environments.
The economy’s impact on real estate sectors could upend current trends, which include the strong demand for rental properties and, in the commercial space, logistics facilities and resilient retail with expansion in click-and-collect. Weakened construction in CRE is keeping vacancy rates low and rents buoyant.
Meanwhile, in the clean energy sector, the report notes Government policies supportive of biogas, solar, and renewable natural gas projects, along with growing demand for electricity with Ontario highlighted.
“We believe the Canadian real estate market will continue to reflect human behaviours—our need for shelter, safety, commerce, and demand for clean energy will continue to grow,” added Byrd. “We see great opportunity in reimagining urban centres, adding much-needed rental housing to Canadian communities and developing Canada’s clean energy infrastructure.”
