CBRE Outlook: Canadian Commercial Real Estate Investment Could Total $48B in 2025

Overall leasing and sales activity are expected to be stronger in 2025. Significant merger and acquisition activity offers additional upside potential.

Momentum in the Canadian commercial real estate investment market is building, the cost of capital crisis is easing, and investment capital will be drawn off the sidelines in 2025, according to CBRE’s Canada Real Estate Market Outlook.

The office market is stabilizing, the industrial sector is softening, while retail and multifamily fundamentals remain strong. Despite variations between property types, institutional capital is expected to return and inject further liquidity into the market, helping push commercial real estate investment volumes to an estimated $48 billion in 2025. Significant merger and acquisition activity could push this total even higher.

“The future of commercial real estate is much brighter than what the doomscrollers would have you believe. Each new completed transaction will provide fresh pricing datapoints that should help narrow buyer and seller expectations,” says CBRE Canada Chairman Paul Morassutti. “Safe, secure Canada is about to look even better in a volatile global context. That comparison plus new price floors and ceilings over the first half of 2025 will give investors greater confidence in pursuing their real estate strategies.”

Here are highlights of CBRE’s sector-by-sector forecast for the Canadian commercial real estate market:

Office

• Market fundamentals past and current suggest vacancy should peak in early 2025. The office market is exhibiting more confidence, with occupiers shifting back into a growth mindset.
• Further bifurcation of office product with a focus on ‘flight-to-experience’ and a slowdown in construction activity is expected to lead to an under-supply of modern, amenitized buildings that are required and in demand by many office tenants.
• Tenants have become more refined in what’s driving their real estate decisions, and high-quality offices in vibrant locations will continue to attract tenant interest and lead to tighter vacancy.
• A muted development pipeline is expected in 2025, with construction levels at a 20-year low and the last tranche of deliveries coming next year. This will be a turning point for the market, helping reduce volatility in the near-term while leading to an under-supply of modern buildings over the long-term.

Retail

• Limited new retail construction will result in a supply-constrained retail landscape in Canada, with low vacancy and rising rents, especially among fixtured units.
• Elevated construction costs are limiting developers from building. With a restricted supply pipeline expected to persist, robust demand should continue to put pressure on vacancy and rents.
• Expect more retailers to expand into secondary markets or modify the scale of their typical store in the year ahead. The average new retail construction project or phase is 35,000 sq. ft. – nearly 50% smaller than three years ago. This smaller format will reshape what the typical store looks like.
• Government plans to curtail immigration could result in a challenging year for retailers, especially when layering in economic challenges and a potential pullback in consumer spending. Value or discount channels, including second-hand or consignment stores, will continue to be popular.

Industrial

• The industrial market is experiencing headwinds following a period of rapid expansion. Softer demand amid an influx of new supply has resulted in rising availability.
• Logistics companies and retailers are finding they don’t need to take on more industrial space because they have capacity, or they took too much during the 2020-2023 expansionary period and are now shedding it.
• The food and beverage sector and data centres are active nationally; auto and electric vehicle production plants are a part of the conversation in Ontario; and in Alberta, economic strength is resulting in heightened demand from local groups. But the pickup among these users is not enough to mask the overall drop-off from retailers and 3PL’s.
• Construction projects where ‘demisability’ was planned for will fare better in the year ahead, others are likely to drop off or stall at foundation work waiting for a tenant to be secured.

Multifamily

• The market will face increased downside pressure amid more new supply and weaker population growth forecasts. Rents for newly built units are at the biggest risk for decreases given higher vacancy rates and still more units expected to deliver over the short term.
• While immigration curbs and slight population declines over 2025 and 2026 may lower aggregate rental housing demand, Canada still faces a housing affordability issue and pent-up demand.
• Long-term fundamentals will continue to support low vacancy rates in the rental market.
• In cities like Vancouver and Toronto, challenges facing the condominium markets are being further exacerbated by the recent influx of new supply, a steep slowdown in sales activity and a growing number of projects falling into receivership.