Experts weigh in on real estate prospects as lower interest rates meet ongoing economic and policy challenges
The Bank of Canada lowered its key policy rate by 25 basis points to 3 percent on Wednesday, a move widely anticipated by markets and economists, according to Bloomberg News.
However, the central bank removed its forward guidance on future rate changes due to the uncertainty surrounding potential US tariffs.
Some experts believe the rate cut may not be enough to overcome ongoing challenges in the commercial real estate sector.
Kevin Meyler, partner and national leader of business restructuring and turnaround services at BDO Canada, told BNN Bloomberg that the cut was expected but that uncertainty remains.
“I think the impact is that there’s still a tremendous amount of uncertainty there. I think commercial real estate has been challenged for some time, so I think that this is kind of built into the pricing. I think commercial real estate is still going to have some headwinds and struggles,” he said.
Meyler pointed to consumer pressures in Canada, potential shifts in US policy, and tariff concerns as factors that may keep investors cautious.
“Not only just the general state of consumers in Canada, but also the impact of (a) change in administration in the US, the tariffs, I think probably people are going to still be waiting a bit to understand more fully the impact of that,” he added.
While some remain cautious, others see opportunities emerging from the rate cut.
Mark Fieder, principal and president of Avison Young Canada, said that the decision is “welcome news” for the sector and could encourage investors to step back into the market. However, he remains mindful of risks ahead, particularly the potential for US tariffs.
“We remain optimistic about a longer-term bull run going into the last half of the year, stimulating appetite and capital allocation in such asset classes as industrial and multi-family,” he said.
Adam Jacobs, head of research at Colliers Canada, noted that many investors are taking a “wait-and-see approach” given the broader geopolitical climate. He said that the market is seeing smaller transactions, more private investors, and an increase in purchases from governments and hospitals.
“Borrowing costs have not changed significantly over the last year, despite five, now six, rate cuts from the Bank of Canada. The commercial property investment market has come down from all-time highs in 2021-22, and now is at historically normal levels,” Jacobs said.
Michael Tsourounis, managing partner and chief investment officer at Hazelview Investments, said that the Canadian real estate market benefits from “favourable foundational fundamentals” but acknowledged that higher short-term interest rates have weighed on property values.
He said the rate cut will support an improving investment landscape in Canadian commercial real estate.
“Lower borrowing costs will improve liquidity, and we anticipate increased transaction activity, especially in sectors like multi-family,” he stated, adding that it could also help improve conditions for adding much-needed housing supply.
Meyler noted that despite ongoing challenges, the current environment presents purchasing opportunities for well-capitalized firms.
“I think that there are a number of properties that are coming up for sale, because…the still higher than normal interest rates might not make it economic for a weaker balance sheet company. But (for) companies with significant capital and that are patient, I do think there are acquisition opportunities,” he said.
Meyler said that while commercial real estate faces headwinds in the near term, investors should focus on the longer horizon.
“I do think there’s a finite amount of real estate….I have to believe it will rebound. Historically it traditionally has. So, I do think it’s an opportunity. And I think if it’s priced right, they may want to look at it right,” he said.
Despite his long-term confidence in the market, Meyler acknowledged uncertainty around future pricing trends. “I do think it’s an opportunity,” he said, “but I don’t know exactly where prices will go from here.”
