The outlooks for Canada's commercial and residential real estate markets heading into 2025 remain mixed depending on the asset class, geography and other factors.

Those were among the sentiments expressed in interviews with more than 200 Canadian C-suite executives and almost 1,600 survey responses compiled from June through August that contributed to PwC and Urban Land Institute’s annual Emerging Trends in Real Estate report.

PwC Canada national leader for private clients Frank Magliocco outlined the report findings, and a panel discussion moderated by PwC Canada partner and national real estate tax leader Fred Cassano provided additional insights during a recent ULI Toronto event at the Fairmont Royal York Hotel.

“What we heard about is a real estate market that’s continuing to grapple with really significant capital constraints, making deal-making really challenging,” Magliocco told the audience of CRE professionals.

Capital constraints hamper investment

While this has led to a delay in some investments and some investment strategies being reconsidered, access to capital is expected to improve in 2025. 

Oxford Properties vice-president of development Veronica Maggisano said her company is viewing things more positively now than a year ago. It is preparing to put shovels in the ground for some major projects over the next few years with the backing of its pension fund owner, OMERS.

Another major issue facing the industry is providing needed infrastructure and transportation to create an environment more conducive to investment and development. 

“We're starting to notice, especially in cities like Toronto, that many of the communities that we're developing in are at this inflection point, where the public infrastructure needs to be expanded in order to keep up with the growth that we’re anticipating,” Maggisano observed. “And in some cases, the developer is actually being asked to foot the bill for those expansion costs.”

Industrial, multifamily assets remain the best bets

Magliocco said industrial and multifamily assets remain the best bets for investment, although alternative asset classes such as data centres and student and seniors housing are also seeing increased investment.

“In 2025, private investors, especially family offices and private equity funds, we believe are going to emerge as the most active buyers — filling the gap that has been left by pension funds, insurers and REITs,” Magliocco said.

“And with the shrinking domestic pool, foreign investment opportunities are actually expanding — especially coming out of the U.S. and western Europe.”

Peter Senst, president of Canadian capital markets for CBRE’s national investment team, said he was recently speaking with investors in Asia who told him it’s difficult to underwrite in Canada because the conditions change too much and too quickly.

Frozen condo market

The condominium market, particularly in Toronto and Vancouver, remains frozen. Purchase prices are stagnating and declining, rents are softening and fewer new projects are being launched.

Devron Developments president Pouyan Safapour called the situation “absolutely horrible,” saying the 567 condo units sold in Toronto during the third quarter of this year was the lowest since the early 1990s.

“Lenders are scared to lend to condo projects, full stop,” Safapour said. “The word condo right now is a dirty word.” 

However, there was a tone of optimism for the future. There have been fewer distress sales than anticipated in the sector and the long-term condo market is expected to fully recover due to demographics, according to Magliocco. 

Unaffordable housing

Housing affordability remains a major issue as the cost of buying and renting are reaching unsustainable levels for many Canadians.

“While governments have announced measures aimed at increasing supply, industry players believe that more comprehensive efforts are needed to tackle this complex challenge,” Magliocco said, pointing out concerns with long and complicated approval processes, labour shortages and rising costs.

“We need more innovation in the entire industry by all stakeholders to drive more efficient supply,” Magliocco continued. “Whether it's new ownership models, financing models, better building methods or even just consistent building codes among the different municipalities, we need much more co-ordinated innovation.”

More focus needed on climate strategies

A big divide remains among Canadian real estate companies when it comes to decarbonization and other environmental initiatives, as some executives still only see these as merely compliance exercises that have to be dealt with.

“Strengthening your climate strategy isn't just about compliance, it's now about a competitive advantage for buyers, investors and lenders alike,” Magliocco warned. “For those that are looking to tap into institutional capital, environmental performance and disclosure are critical.” 

CPP Investments director of real estate investments Janet Chung said a lot of her company’s attention over the past decade has been on decarbonization. It has now also sharpened the focus on physical climate risk and how changing weather patterns can potentially impact its portfolio. 

Top markets to watch in 2025

The report named Calgary the top market to watch in Canada in 2025, followed by Vancouver, Toronto, Edmonton and Montreal.

Senst shared the positivity regarding Calgary during the panel discussion. He said investors are looking for “deep value” in office properties while multifamily and industrial are performing consistently well.

Senst said offshore capital had pulled back in Vancouver but has been coming back over the last few months. That should give a boost to the local real estate market.

Fifty to 60 per cent of Canadian real estate investment is done in Toronto, according to Senst, who added that investors in the market are looking for scale and interesting deals.

Senst said the Montreal market has been consistent and noted it remains more of a yield play than Toronto.