Industrial Property
While activity in the industrial market in Canada is now past its growth peak, it remains a solid performer in several regions. Nationally, Colliers reported an increase in the availability rate to 5.1 percent in the second quarter of 2025 from 4.4 percent during the same period last year and softening rents in markets such as Toronto and Montreal.
The industrial market is evolving as some companies look to enhance the speed and efficiency of distribution centres. One interviewee noted it’s becoming more important for companies to tailor their logistics systems based on market, location, and demand factors, and they highlighted how AI is providing a real opportunity to do so.
The market is also seeing a shift to focus on small-bay assets over large-bay properties. Interviewees noted how small-bay assets can more flexibly transition between tenants as market conditions shift—making them a more attractive bet given economic and trade uncertainties. At the same time, one interviewee described how small-bay projects can be hard to make work given their challenging economics. Prospects for small-bay properties are better in markets such as Ottawa, where there’s an inventory of aging and outdated warehouses that can be refurbished and repurposed to serve new tenants.
Ottawa stands out as being a strong market for industrial real estate more broadly, as evidenced by average asking net rents rising from $15.74 to $17.33 per square foot on a year-over-year basis, according to Colliers’s national market snapshot for the second quarter of 2025. Elsewhere, Calgary is attracting interest, driven partly by its greater affordability and lower land costs compared to Vancouver, which had the highest asking net rent ($20.17 per square foot) among the cities analyzed in Colliers’s industrial market report for the second quarter of 2025.
Toronto continues to see a slowdown in industrial activity, with Colliers reporting a rising availability rate and declining asking rents. Despite this softness, interviewees suggested that people still believe in the market and that some are spec building in a measured way. Interviewees also noted that there are good growth opportunities in lease turnovers. As leases expire, property owners can capture some of the significant rent growth seen over the past five years even though rates have fallen from their peak.
Quebec’s industrial market has also experienced setbacks. In Montreal, the industrial availability rate has risen to 5.4 percent in the second quarter of 2025 from 4.6 percent during the same period last year, according to Colliers. The average asking net rent fell to $14.75 per square foot from $15.37.
Looking to the future, several interviewees identified self-storage as a good bet. Densification trends play a role in this, with one interviewee stressing the link between housing development and demand for self-storage, while another emphasized its importance in mixed-use projects.
Data centres were also identified by some interviewees as a growth area, particularly given the rapidly rising demand associated with AI and cryptocurrency mining activities. Others suggested data centres haven’t lived up to their hype given constraints such as power supply availability. While several interviewees suggested they’re not ready to make a move on data centres, they acknowledged they remain attractive in the long term and noted they’re likely more suitable for institutional investors than private developers.
Office
The office market in Canada is showing signs of stabilization, with some interviewees voicing optimism that demand will recover given return-to-office mandates by major Canadian banks, some large employers, and the Ontario government. During the second quarter of 2025, the national office vacancy rate stood at 18.7 percent. The market continues to be bifurcated, with the national downtown vacancy rate at 10.6 percent for core trophy assets and at 25.3 percent for class B and C properties. CBRE suggests vacancy rates have plateaued after showing little movement for some time.
Despite the improving sentiment, the performance and outlook for the office market in Canada vary by region, with downtown class A vacancy rates ranging from 9.6 percent in Vancouver to 25.4 percent in Calgary. The large business centres of Vancouver and Toronto are starting to see renewed interest, with one interviewee highlighting how some large users—such as financial institutions and law firms—are running out of space. Interviewees also noted increasing interest in long-term leases, although this was moderated by concerns over eroding consumer confidence and tenant hesitation over when to make a move on taking on additional space given current trade uncertainties.
Meanwhile, Ottawa’s office market continues to struggle. The lack of momentum for return-to-office initiatives across the federal public service, combined with the government’s plan to significantly reduce its office portfolio over the next decade, could affect absorption rates and weaken market conditions further. Quebec City’s office market is also facing challenges given the strength of hybrid work models within the provincial government and the ongoing trend of tenants looking to downsize space on renewal.
Office construction activity remains muted nationally, driven by a lack of project starts, although one interviewee suggested that the lack of new product could create opportunities in the future. The subdued interest in class B and C offices across Canada was notable, although one interviewee stressed that not all these assets are the same. They suggested that those class B and C assets that have unique attributes could come back eventually while others could be targeted for demolition.
Conversions are gaining some interest, with interviewees pointing to municipal support programs and projects to convert vacant office space to residential in Calgary and to the federal government’s pledge to support the conversion of office space, including of vacant federal properties. Interviewees also highlighted several creative opportunities for future conversions, such as turning office properties into transitional communal housing—with shared kitchen and bathroom facilities—which could serve groups including recent immigrants. One interviewee suggested that these types of conversions could help ease pressures on the rental housing market while making use of vacant office buildings.
Investor perceptions of the office market are quite varied. Some believe there is a dislocated market that can provide opportunities. For example, several interviewees reported that there could be opportunities if pricing is attractive with high single-digit cap rates, while others noted that both cap rates and projected yields are becoming more attractive from a risk-adjusted perspective to private equity investors. Other investors remain cautious, suggesting that any deals in the office market will likely involve very strategic buyers rather than anyone looking to place big bets on the space.
Retail Property
Sentiment toward the retail segment is largely optimistic, as evidenced by the sector’s relatively low NAV discount. Several interviewees identified retail as a good bet, with landlords reporting strong tenant demand and rising rental rates.
One interviewee suggested that some vacancies would be welcomed, as it would give them a chance to reset rents at higher levels. Limited construction in recent years has likely contributed to this, putting space at a premium. Some interviewees even suggested they may be looking at building new retail developments. Others noted that with cap rates compressing, those looking at investing in the space will likely find themselves paying more than they hoped.
Open-air retail is performing well: interviewees identified grocery-anchored developments in suburban locations as a best bet for 2026. Several suggested that there will always be a market for good-quality local retail, while others highlighted how mixed-use developments are a key strategy for bringing in customers—with the quality of the residential component bolstering the retail side and vice versa.
Experiential retail is also attracting increasing attention. One interviewee highlighted the concept of “eatertainment”—the combination of food and beverage offerings with novel and sharable entertainment experiences—as an attractive opportunity because of its ability to create destination locations that then support other retail businesses nearby. Some of these experiential offerings are taking up spaces left by anchor tenant departures, helping to reinvigorate retail properties. Several owners are also looking at anchor tenant departures as an opportunity to redevelop larger spaces to unlock new value aligned with evolving consumer preferences.
It’s important to note that the positive sentiment toward the retail segment isn’t universal. In addition to the loss of a major department store tenant this year, some interviewees said increased caution about the economy is causing more hesitation among companies considering long-term leases for large spaces, extending the time for property owners to find new occupiers.
Condominiums
The condo market in Canada continues to face headwinds, including sustained investor pullback, a mismatch between the inventory of unsold units and end-user demand and high development costs in many regions.
Economic uncertainties, rising costs and weak consumer confidence are exacerbating the challenges, leading many interviewees to believe a market recovery remains years away. One interviewee characterized the market as “dead for the next few years,” while another called it lethargic and oversaturated, with companies needing to accept lower margins to sell existing supply.
Conditions are particularly challenging in Toronto, which is expected to see a record number—31,422—of completions in 2025, according to Urbanation’s recent condominium market survey. With market saturation high and new unit sales hitting a 30-year low in the second quarter of 2025, some developers are holding back from new starts, while others are exploring shifting developments to purpose-built rental housing. One interviewee noted how they’re running pro formas on the conversion of condos to rental units in areas where there’s demand—with some penciling out much better despite the complexities involved.
Vancouver’s condo market also remains stalled, with some industry participants voicing concern that the lack of new starts could negatively impact supply in the future. In its 2025 Housing Market Outlook, CMHC suggests increasing inventory, combined with low pre-sales activity, will create challenging conditions, particularly in the city centre where project feasibility depends on higher prices. Several interviewees suggested the government needs to revisit certain policies—such as relaxing the foreign buyer ban and the property transfer tax—to improve market conditions.
As owners with land earmarked for condos decide not to move ahead, there may be a reset on land price, creating opportunities for developers to pick that land up or pivot to the multifamily rental market. Some well-capitalized companies are also looking at the down market as an opportunity to acquire properties at affordable prices.
While new condo starts may take time to recover, the industry is evolving toward larger units as well as medium-density and mid-rise developments. “The condo will evolve to mid-rise units that are end-user dependent,” said one interviewee. When speaking of the shift toward end users, another interviewee cautioned that in the absence of large bulk purchases of units by investors, pre-sales periods will likely take longer, raising questions about how financing will need to adapt.
Purpose-built Rental Housing
The purpose-built rental housing market in Canada continues to see increased interest, driven in part by developers shifting away from the depressed condo space. One interviewee suggested that new purpose-built rental developments are the biggest opportunity in the residential sector, even with pro formas being tight, financing becoming more difficult to obtain, and rental rates trending lower.
There are ways to make purpose-built rental developments more viable, interviewees noted, including taking advantage of affordable housing programs and municipal incentives such as lower development charges. Partnerships—including with nonprofit housing organizations—are also emerging as developers look to access incentives and bridge funding gaps. Some companies are also using their existing land for development purposes given the significantly lower cost compared to purchasing property at current market prices.
In Toronto and Vancouver, some developers have pivoted stalled condo developments to rental projects or are in the process of assessing the possibility of conversions. The decision to pivot isn’t straightforward, given factors such as the status of the development, associated land costs and CMHC rules and requirements. With the impact of increasing condo inventory and decreasing immigration numbers on the rental market, rents in Toronto and Vancouver are also starting to soften, which is creating some unease despite the overall positive sentiment toward the multifamily segment.
As with other asset classes, trends in the rental market vary across the country. According to CMHC’s Mid-Year Rental Market Update, while several urban centres saw rents decline on a year-over-year basis in the first quarter of 2025, they increased in Montreal, Ottawa, and Edmonton, although at a slower pace compared to previous periods.
Interest in the purpose-built rental market remains high in both Montreal and Quebec City. Several companies in the province are focusing developments on existing retail assets to make use of excess land, increase density, and drive more value from their properties. Similarly, developers in Ottawa are prioritizing transit-oriented developments as the city builds out its light-rail network.
Looking forward, some interviewees expect to see increasing headwinds, including rising vacancies, softening rents, and declining demand due to shifting immigration policies. There’s also concern that changes to CMHC programs could make financing projects more difficult. One interviewee emphasized the importance of capital availability, suggesting the need for more creative approaches to lending to move rental projects forward.
Single-family Housing
The single-family housing market in Canada is showing resilience, although affordability remains a challenge. According to RBC’s housing trends and affordability report for the first quarter of 2025, while the national affordability measure (which reflects housing costs as a percentage of median household income) for single-family detached homes has come down from 67.2 percent in early 2024, it remains elevated at 61.7 percent.
Affordability fluctuated significantly by market, with Vancouver identified as the least affordable by a large margin (130.6 percent, down 7.2 percentage points from the previous year), followed by Toronto (86 percent, down 10.3 percentage points). Among our 10 markets to watch, the report found Winnipeg to be the most affordable (33.2 percent), followed by Saskatoon (34.8 percent) and Edmonton (36.3 percent).
Affordability and cost factors are shifting the focus of single-family housing developments, with more attention going to smaller lots and townhouses. In suburban areas, developers see townhouses as a good investment due to their affordability and market responsiveness, with offerings suited to young families and those upsizing or downsizing.
In some cases, condo developers described how they’ve pivoted to building low-rise suburban townhouses. With the condo market expected to continue to suffer and rents softening on the purpose-built rental side, they viewed the shift toward townhouses in part as a way to keep their people employed without having to make a large investment.
When it comes to regional variations, several interviewees noted how high development fees and slow municipal approval processes are hindering new supply and driving up costs in regions such as the GTA and Vancouver. The outlook is brighter in Alberta, according to one interviewee, who suggested that land affordability, timely approvals, and lower development fees are supporting low-rise growth there. Another interviewee identified single-family developments as a good bet in Alberta given the demand from buyers relocating from higher-cost provinces.
Despite concerns about economic uncertainty and changing immigration policies, there’s cautious optimism that the single-family housing market will remain steady, with good absorption of low-rise homes. While CMHC’s housing market outlook report suggests there could be a small recovery in housing starts for affordable options like row houses, most interviewees expect activity to remain modest.
