Intelligent Investment

Letters of Intent

Canada Monthly Market Commentary

July 24, 2025 2 Minute Read

Earlier this month, the U.S. Administration ratcheted up pressure on trade negotiations by sending out a flurry of letters to countries notifying of new and higher tariffs coming into effect on August 1st. These letters were sent to over a dozen countries including the U.S.’s largest trading partners like the EU, Japan, South Korea, Mexico and also Canada. The new tariff rate is set to be 35% for Canada but is likely to exempt goods that fall under the existing North American trade agreement, however, this remains uncertain. With this latest development, the deadline for trade deals has effectively been pushed back to August 1st, a date that allegedly will not change nor be extended.

As trade negotiations intensified in recent weeks, it has become increasingly likely that Canada may ultimately have to face some level of baseline U.S. tariffs going forward. Among the several bilateral trade deals with the U.S. that have been announced so far, none have been successful in getting tariffs completely eliminated. Even though the new baseline tariffs negotiated in these trade deals are still high by historical standards, countries have accepted these levies in favour of ending the uncertainty that has paralyzed businesses for most of this year. Canada claims to be prepared to hold out for the “best deal” and may consider negotiating past the August 1st deadline. Meanwhile, the legality of the tariffs remain under legal dispute. The U.S. appeals court is scheduled to hear arguments on July 31st, just one day before the tariffs are set to return.

With Canada’s trade outlook still in flux, the Bank of Canada is heavily expected to keep interest rates flat at 2.75% in their upcoming July 30th meeting. In fact, some economists are starting to anticipate the central bank will hold interest rates through to the end of the year given the elevated uncertainty and recent uptick in core inflation.

Against this backdrop, commercial real estate investment activity will continue to face some challenges in Canada. However, as noted in the CBRE Canadian Cap Rates & Investment Insights Q2 2025 report, deal activity has continued to occur with investors focused on best-in-class assets, particularly in multifamily and retail. Notably, the office sector is also starting to see renewed interest and sentiment, further bolstered by recent momentum in the return-to-office by the large banks. Overall, national cap rates have largely held steady, with the all-properties average yield decreasing a modest 5 bps cumulatively over the last four quarters.

Economic Highlights:

  • Employment rose by 83,100 jobs in June 2025 and the unemployment rate decreased slightly to 6.9%.
  • Headline inflation rose to 1.9% in June 2025 with core measures CPI-Median rising to 3.1% and CPI-trim holding flat at 3.0%.
  • The Bank of Canada’s Q2 2025 Business Outlook Survey found that the share of firms planning for a recession declined slightly from 32% to 28%, but remains above 2024 levels. 

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