Canada Real Estate Market Outlook 2024

While 2023 was a challenging year for commercial real estate, Canada fared relatively well in context. Case in point: Canada’s $49.5 billion year for investment represented a 15% year-over-year decrease; however, this paled in comparison to global investment activity levels, which plummeted by 47%during the same period.

Indeed, it was global investors who recognized Canada’s appeal—safety and security, coupled with G7-leading long-term growth prospects—whose investments saw 2023 reach the highest level of foreign investment on record.

2024 will also offer a mix of challenges and opportunities. Liquidity and the cost of capital should improve, but mortgage renewals will still result in increased borrowing costs. Outside of commodity office, leasing fundamentals are strong. Population growth has a direct correlation with demand for all types of real estate, and Canada will grow faster than anyG7 country.

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Executive Summary

1. Interest Rates:Assuming inflation continues to follow the Bank of Canada’s trajectory, economists project interest rates could begin decreasing in late Q22024 and fall 100 bps to 4.00% by the end of the year.

2. Economic Growth:Canada is forecast to lead the G7 countries over the next five years across the major economic indicators of GDP, employment, and population growth.

3. Investment Deals:Mid-sized investment deals, which had been more muted in 2023, should rebound and drive transaction activity in 2024, with any M&A activity presenting additional upside potential.

4. Lending Trends:High levels of dry powder for lending will see tight lending spreads for industrial, grocery-anchored retail, and multifamily. Funding gap challenges will persist in office, land, and residential condo loans.

5. Office Market Trends:Office markets will continue to experience bifurcation between quality and commodity space. Flight-to-quality will sustain demand for trophy assets, and landlords will need to increase their amenity offerings tore main competitive.

6. Retail Sector Dynamics:Consumer behavior and spending patterns will test retailers and push for innovation. However, churn will be a boon for the sector, which has seen limited vacancy amongst the most in-demand formats.

7. Industrial Sector:The industrial sector is returning to balance as rental growth normalizes and a wave of new supply lifts availability rates. Market conditions will remain healthy relative to historical norms.

8. Multifamily Housing:The Canadian multifamily sector will continue to grapple with significant undersupply as unprecedented population growth drives record demand.