Avison Young has unveiled a spring forecast for Canada’s commercial real estate market, which suggests a notable shift in investor interest. Assets that in the past few years were being dismissed in favour of others are beginning to attract renewed attention, while some of the former go-tos are gradually losing interest.
These trends will largely depend on shifting economic conditions, global trade dynamics, and broader macroeconomic factors, but they offer insights for investors looking for new approaches.
Return of Retail
Retail has been seen as a struggling asset class since the pandemic, but investors are now looking again to retail properties. This shift is driven by a growing consumer preference for in-person shopping experiences. With limited new construction over the past decade, existing retail assets, especially grocery-anchored neighbourhood shopping centers, have become more scarce. Rising lease rates, which in some markets have increased by up to 15%, further highlight the tightening supply and improving rental yields. As a result, these centers can be increasingly attractive due to their stable cash flows and lower turnover risk.
Industrial Market Stabilization
The pandemic period saw an influx of new inventory that raised vacancy rates to 3.6% from 2.4% in 2023. However, the Avison Young forecast indicates a rebalancing of this segment. In markets such as Edmonton, demand remains robust, driven by diverse tenant needs from distribution to manufacturing. Base rental rates have seen notable increases, while vacancy rates are gradually declining. With a slowdown in new construction of approximately 40% in 2024, the industrial sector appears to be moving toward more stable fundamentals, although this trend is heavily dependent on evolving trade and economic situations.
Rethinking Office Assets
After years of relative neglect, there is a growing curiosity among investors regarding office properties, reconsidering the potential of this asset class. Limited new supply, especially in suburban areas around major cities like Toronto, has kept the market tight. In some cases, older office buildings are being repurposed for residential use, as seen in Montreal, where conversion projects are underway. While the office market is not universally robust across Canada, there are pockets and niche areas where demand is stabilizing.
Broader Interest in Hotels
The forecasts also note an emerging interest in hotel properties from non-traditional investors. Transparent performance metrics have contributed to reducing some of the uncertainty typically associated with the hospitality sector. Additionally, investors are increasingly looking to secondary and tertiary markets where yields may be more attractive and entry points are more affordable, despite the need for potential deferred capital improvements.
Multifamily Properties in Quebec
While multifamily investments in many areas have softened, Quebec continues to see consistent volumes, a trend partly attributed to its strong rental culture. Local regulations, including a higher allowable rent increase, support sustained private investment activity in the province.
Full details are available in Avison Young’s report.