Despite rate stability, key uncertainties still hang over Canadian real estate

Surveying commercial and residential real estate markets

While Reading says that each subset of the real estate market faces its own headwinds, there are improvements in areas like industrial and office real estate. Industrial has recovered with some absorption of the significant stock that was built in the wake of the pandemic. Office demand has picked up as well thanks to back to work mandates from many large employers. Reading still believes we’re not in a full-blown recovery for the office market, but the highest quality office assets are currently holding up particularly well.

Apartment real estate, he notes, should recover despite the hits it has taken from reductions in the rate of Canadian immigration. That reduction in immigration rates may also slow the residential purchase market, compounding a class of home buyers who are less likely to maximize their mortgages in the face of an uncertain economic environment. Both businesses and individuals, he says, are putting their money into stable properties that can be maintained over the long-term.

“It’s not the time to go up the risk ladder,” Reading says. “It’s time to be stable, conservative, selective.”

How investors might play real estate now

Reading is still of the view that despite this uncertainty, investors want to allocate to real estate. REITs, especially those invested in stable long-term properties, are still popular among investors, while the mom and pop investments in the condo market have now completely fallen out of favour. Retail is also a strong sector for investors seeking stability and income, with grocery anchored retail assets performing particularly well.

While AI is creating a degree of long-term existential dread among some workers, Reading says it’s increasing short-term demand for office space as tech firms add staff to build out AI tools and platforms. He argues that the economic tailwinds caused by the AI theme has supported the office market and while Canada has not had the kind of boom in data center construction that we’ve seen in the United States, there are a few properties on the industrial side that might show promise.