Commercial Real Estate Outlook for Canada 2025: Navigating Uncertainty and Embracing New Opportunities
As we approach 2025, the Canadian commercial real estate market stands at a crossroads. After more than two years of uncertainty, rising interest rates, and a shifting economic landscape, many in the industry are asking: what does the future hold? The market remains under pressure, but emerging trends and new opportunities suggest that a shift in strategy could lead to a recovery and potential growth in the years ahead.
1. Market Slowdown and the Impact of Rising Interest Rates
The Canadian real estate market has been significantly affected by high interest rates, which have persisted for longer than many initially expected. According to Colliers, the development landscape has slowed across multiple asset classes. While the conventional cycle of boom and bust typically leads to quiet periods after a hot market, the current environment is unique. The widespread adoption of remote work has fundamentally altered the demand for office space, with many developers pulling back from office projects. Even in cities like Vancouver and Toronto, where office development had previously been booming, new office construction has subsided to near-zero levels.
But it’s not just office space that’s feeling the pinch. Industrial development, which had seen an unprecedented boom, is now down 30% from its peak, and apartment construction has also slowed. High construction costs, long build times, and, of course, interest rates are weighing heavily on all sectors of commercial real estate (CRE).
This slowdown in new development has led to rising vacancy rates across most asset classes, with the exception of retail. Colliers highlights several factors contributing to this trend, including record-high land costs, a restrictive lending environment (particularly for office spaces), and long municipal approval times. As these issues weigh on the market, industry players will need to adjust their strategies and focus on more sustainable opportunities.
2. Emerging Trends and Sector-Specific Challenges
Despite these challenges, new opportunities are emerging, and trends in the real estate market are evolving. According to PwC’s Emerging Trends in Canadian Real Estate 2025 report, the Canadian market is becoming increasingly differentiated. The outlook remains mixed, with performance varying significantly depending on factors such as region, asset class, and the specific characteristics of an investment or development opportunity.
One sector under pressure is the condominium market, especially in Toronto, where some developments led by smaller companies are facing distress. Factors like Canada’s rapid population growth could support long-term recovery in the condo sector, but uncertainty remains due to the federal government’s recent moves to curtail both temporary and permanent immigration, which could impact consumer demand.
As PwC notes, some companies are finding success by focusing on niche property types that are increasingly relevant in the current market, including data centers, cold storage facilities, and student housing. These real assets, which blur the lines between real estate and infrastructure, appeal to investors who believe that changing consumer, technological, and business trends will create new real estate requirements in the years ahead.
3. Suburban Shift: Downtowns Face a Reckoning
One of the most noticeable shifts in the Canadian commercial real estate market is the migration of businesses and workers away from downtown cores. Historically, downtown areas had lower vacancy rates than suburban regions, attracting top-tier employers and commanding higher rents. However, this trend has reversed in many Canadian cities.
According to Colliers, suburban vacancy rates are now lower than downtown vacancy in most Canadian metros. Several factors are contributing to this shift, including rising commute times, demographic changes (with employees moving further from city centers), and the increasing cost of living. While downtown areas are still seeing higher rents, the combination of these factors has led to higher vacancy rates in the heart of Canada’s major cities.
This shift has placed pressure on downtown developers and investors, but cities like Calgary have managed to see a reduction in vacancy rates due to aggressive policies encouraging the conversion of obsolete buildings into more useful spaces. However, whether other cities will follow suit remains uncertain, as it requires significant political will to fund office conversions and make these projects viable.
4. Sustainability and Climate Change: A Growing Focus
Another critical factor influencing Canadian real estate in 2025 is sustainability. As natural disasters become more frequent and severe, stakeholders in the commercial real estate market are placing greater importance on the long-term resilience of their holdings. Investors, developers, and regulators alike are increasingly concerned about the impact of climate change, especially as new regulations surrounding climate risk management are rolled out, affecting insurance pricing and policies.
The shift towards more sustainable practices is driving a push for innovation and adaptability within the industry. Real estate companies are focusing on strategies that balance environmental impact with profitability. Sustainable buildings, green energy initiatives, and climate-resilient development will play a significant role in shaping the future of commercial real estate in Canada.
5. The Road Ahead: Innovation and Resilience
While 2025 presents a host of challenges for the Canadian commercial real estate market, it also offers several opportunities. According to PwC, the key to success lies in creativity, resilience, and market insight. Companies that are able to innovate, build strategic partnerships, and integrate sustainability into their operations will be better positioned to thrive.
Some of the most promising sectors for growth include industrial real estate, purpose-built rental housing, and the aforementioned niche property types. As the market for core office and retail properties tightens, real estate investors are increasingly turning to assets like data centers, cold-storage facilities, and even student housing—opportunities that align with evolving business, technological, and consumer trends.
As Fred Cassano, National Real Estate Leader at PwC Canada, states, “Success in Canadian real estate demands creativity, resilience, and market insight. Innovative financing, strategic partnerships, and sustainability help navigate uncertainty and drive growth. Operational excellence ensures these strategies are executed effectively, leading to better outcomes and long-term success.”
Conclusion
The commercial real estate outlook for Canada in 2025 is a mix of caution and opportunity. While high interest rates, development slowdowns, and changing market dynamics present challenges, there are also emerging trends and niche opportunities that could lead to growth. By focusing on sustainable, innovative, and resilient strategies, real estate companies can position themselves for long-term success in a rapidly changing market.
As Canada’s real estate landscape continues to evolve, staying informed about these trends will be key to navigating the uncertainty and capitalizing on new opportunities.
Published by Colliers, PwC Canada, and The Globe and Mail.
