The Canadian commercial real estate has some challenging times ahead, according to a Canadian Sector Update from Green Street released in June, but many investors will have some guideposts to help navigate the road ahead.
Green Street is an independent, leading provider of research, news, data, analytics and advisory services for the commercial real estate industry in Canada, the U.S., Europe and Australia, working with public and private investors.
“Theoretically, the [publicly] listed side will price events, trends and sentiment several months in advance,” says Fred Blondeau, managing director and head of Canadian research at Green Street.
“That can be from macro, sector and/or issuer specific standpoints. I would say for Canadian REITs [real estate investment trusts], it typically relates to general market or sector sentiment.”
Publicly listed investors, such as real estate investment trusts or real estate operating companies, invest according to their own particular missions. So, Allied Properties REIT – which is a real estate investment trust engaged in the development, management and ownership of urban office environments – will have a different approach than CAPREIT, Canada’s largest publicly traded provider of quality rental housing, will take in the apartment sector.
“In conjunction, private investors can have an influence on fund flow trajectories through their market and sector allocations. These decisions send signals on the level of appetite for certain types of investments, which may or may not indicate forming trends in the private space, which may or may not directly reflect into the listed space.”
Private institutional investors, such as pension funds, have more general, comprehensive investment and risk policies, and their investment strategies evolve with time, but in the context of certain parameters. So, if the larger, well-funded institutional players on the private side are ahead of the investment trends, where are they allocating capital today?
“Although commercial real estate investors are still interested in apartment and industrial sectors, food-anchored retail properties’ cash flow stability is also attractive in the present context,” Blondeau says. “In conjunction, institutions want to further increase their knowledge on alternative real estate sectors’ market dynamics and opportunities, notably self-storage, student housing and data centres.”
Some of the operating fundamentals affecting investment choices, according to Green Street’s research in the Canadian Sector Update, include tariff and macroeconomic uncertainty slowing gross domestic product (GDP) growth, with tariff uncertainty leading to modest rent growth in the industrial sector, as well as subdued job growth over the next few four quarters, rising interest rates and highly indebted households curtailing discretionary spending.
There is modest rent growth in the apartment sector, stretching affordability, with rising vacancy rates challenging apartment landlords.
Green Street points to marginal improvements in occupancy, net absorption and sublet space in the office sector. Retail rents remaining strong despite the closure of Hudson’s Bay and senior housing fundamentals remaining strong as demand outstrips supply.
Capitalization rates increased across apartment markets, but remained flat in industrial, office and retail sectors. REIT net asset values – which refer to the value of a REIT’s assets minus its liabilities and are key metrics for assessing the intrinsic value of a REIT – are flat on average (-3 per cent to +3 per cent), with retail leading the other sectors.
Despite the headwinds, especially in the office sectors, Green Street analysts see green shoots of opportunity for investors.
APARTMENT
The decline of condo construction, with receiverships at a 10-year high in key Canadian markets, and the fact the prices of single-family homes are coming down, are all directly affecting the apartment sector, Blondeau says.
“The opportunity is that, at some point, immigration will pick up again and the market conditions starting in 2027 will look very good for apartment owners,” he says. “In the meantime, there could be some volatility in terms of rent growth and occupancy.”
Uncertainty around population growth and job creation is negatively affecting rent price all across Canada, the sector update says.
INDUSTRIAL
The same situation applies to the industrial sector, Blondeau says.
“It’s about the new supply that came to market, but we feel that with today’s pipelines, it will be absorbed more rapidly,” he says.
Around 20 per cent of expiring lease contracts were signed before the pandemic, meaning the rent rollover will be relatively high for these contracts, Blondeau says.
“The kind of growth that you are seeing in industrial that you won’t see elsewhere is because of that,” he adds. “That’s why industrial right now is our favourite sector. With that one, probably more so in 2026, we will see a stabilization of fundamentals and maybe demand picking up again at the right time, where there’s no new supply or new projects being launched.”
Macroeconomic uncertainty is the major headwind that could have a negative impact on this sector, likely leading to turmoil over the next 12 months, the sector update says, with industrial standing out as a “rental rate underperformer” mid-year.
RETAIL
In the shopping centre space, Canada is seeing a “very stretched consumer” who is still spending, says Gaurav Mathur, an analyst concentrating on Canadian research at Green Street.
“This is one sector that has not seen any meaningful supply in the last 10 years,” he says. “So, we’re starting to see rents rise. At the same time, this is a very shallow pool of retailers compared to the U.S. or Europe. You’re not going to see outsized rent growth that you’ve sometimes seen in multifamily and industrial. But the stability of the sector, especially in times when there’s a lot of macroeconomic uncertainty, is something which is very attractive to investors.”
Excluding Montreal, Canadian retail markets are expected to become even tighter, with retail sales continuing to be robust in 2025, coinciding with robust rent growth, the report says.
“We do favour the more stabilized grocery-anchored centres,” Mathur says.
OFFICE
“Office is one sector where we don’t see opportunities,” Blondeau says. “We’re falling more into job losses at the moment. … That means demand for office space is not going anywhere at this stage.”
However, Canadian downtown office markets have started to improve because of result of back-to-office corporate initiatives, Mathur says.
“The office market is almost like a tale of two cities within each market,” he says. “The trophy, Class A office product is still very well leased. We’ve seen some pushback from tenants, especially in the financial services space, where they have asked employees to come back to the office more than three days per week,
“But when you move towards Class B, Class C office, we are not seeing similar trends. We are seeing vacancies rise there quite a bit. We think the work-from-home phenomenon will remain entrenched. At the same time, when the economy worsens, people are concerned about their jobs [and so] they might just start showing up in the office a little more than they previously used to.
“But over all, when we look at the fact that there is a softening labour market, especially in the white-collar job segment, that does not bode very well for office demand across the board.”
OTHER
Senior living is where there is big opportunity for investors, according to Green Street data. Blondeau points to the 75-plus population, which is expected to increase dramatically over the next few years. Seniors are wealthy, having done well in the housing market, and are supporting demand while there’s little supply, which is leading to price increases in that sector.
“We see more interest towards senior housing … apartments, single-family housing, student housing, along with industrial and data centres … given what we are seeing in AI,” Mathur says.
Green Street analysts are also seeing more attention on self-storage, Blondeau adds.
“There is a lot of capital for these asset classes,” he says. “Investors want to look outside the traditional real estate sectors at the moment.”
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