Intelligent Investment

A Year of Opportunity for Commercial Real Estate in 2024

Canada Monthly Market Commentary

February 29, 2024 2 Minute Read

Inflation in Canada appears to be back on track with the latest economic data showing headline inflation had slowed to 2.9% in January. Ever since inflation started to accelerate in 2021, this is only the second time headline inflation has fallen within the Bank of Canada’s target range of 1% to 3%. However, given the recent volatility in the indicator, additional decreases are needed to meet the central bank’s prerequisite for “clear downward momentum” before considering interest rate cuts. As long as inflation continues to cool over the next few months, current economist expectations are for the Bank of Canada to start cutting interest rates towards the end of Q2 2024.

Canada’s economic outlook is heavily dependent on the anticipated interest rate cuts. The easing of credit conditions is expected to propel economic growth later in the year and continue into 2025. Accordingly, stronger economic growth prospects bode well for Canadian commercial real estate, where 2024 will offer a mix of challenges and opportunities according to CBRE’s 2024 Canada Real Estate Market Outlook. Leasing fundamentals are strong outside of commodity office and investment activity should respond in 2024, led by a return of mid-sized investment deals. Cap rates are expected to stabilize in 2024 as spreads over bond yields have normalized and are more closely in line with the long-term historical average. Real estate debt capital will remain abundant but highly selective, targeting asset classes with favourable metrics.

While commercial real estate loan losses have become a growing pain point for U.S. regional banks and some global lenders, they are expected to remain a manageable risk for Canadian lenders according to OSFI, the Canadian banking regulator. In particular, office loans are facing challenges but represent only 1% to 2% of Canadian banks’ total portfolios. Provisions for real estate loan losses will likely impact bank earnings, however, OSFI does not expect it to impair the level of regulatory capital for Canadian banks.

Economic Highlights:

  • Headline inflation slowed to 2.9% in January 2024, the first time it has fallen below 3% since June 2023.
  • Employment rose by 37,300 jobs and the unemployment rate slightly compressed to 5.7% in January 2024.
  • Advanced estimates are for retail sales to fall 0.4% in January 2024, following a stronger than expected increase of 0.9% in December 2023.


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