Canadian Real Estate Market Update – Q4 2023

With a softening economy, stable labour market, and inflation measures looking quite tame, the Bank of Canada may feel better about the restrictiveness of their policy and could in fact begin to ease off if further softening persists. A material risk to a rate cutting cycle beginning in 2024 is an “Inflation Revival” scenario that Fiera Capital forecasts with a 45% probability, over the next 12 months – if this does not occur (55% probability), other scenarios involve less restrictive interest rates.

In the industrial real estate sector, a significant increase in new supply has led to a higher availability rate. Despite this, the sector’s long-term prospects remain strong due to a structural imbalance in supply and demand, particularly evident in the under-supplied smaller bay segment. The multi-residential market is seeing tightening conditions with vacancy rates at historic lows and rents climbing, driven by a mismatch between supply and demographic demands. Federal measures to incentivize new rental housing construction aim to alleviate these pressures. Retail real estate is adapting through technological advances, despite a rise in the national vacancy rate. This evolution suggests a transformation in consumer shopping behaviours, potentially reshaping demand for retail spaces. Meanwhile, the office market continues to deteriorate, but at a more muted pace, especially in Class ‘A’ spaces, as the market continues to adjust to new work patterns established in the post-pandemic era.

For the first time in two years, the negative effects from down-cycles in economic growth and liquidity that have formed a headwind for real estate may be changing and setting the asset class up for an asymmetric recovery. Although a lot of uncertainty remains, Canadian real estate has traditionally outperformed other property markets during times of economic uncertainty and foreign investment is increasingly recognizing its merits.

Read our quarterly Canadian Real Estate Market Update, produced by our Strategy, Planning and Analytics team, to learn more about the current state of the office, industrial, retail and multi-residential asset classes, and what to expect for 2024.