Canadian real estate remains attractive to foreign investors for several reasons, including its political stability, tax structure and certainty, and how it has outperformed the American market – with less volatility – over the past 20 years.

BGO Canada chief investment officer and portfolio manager Simon Holmes opened the closing roundtable session of the recent RealCapital conference at the Metro Toronto Convention Centre on that optimistic note.

“We've seen significant inflows over the last year-and-a half, and over half of that has been from Europe,” he said. “If you look at the groups that were actively buying office over the last year-and-a-half as the office market reopened, it's been a lot of international capital. 

“So despite the challenges we see domestically, it's a great capital-raising environment for Canadian real estate.”

Holmes said European investors are willing to achieve lower returns, in the six to eight per cent range, on Canadian real estate while domestic institutions are requiring returns from 10 to 14 per cent.

Canada is a low-risk market

QuadReal executive vice-president of Canadian investments Jamie Manley said Canada is a low-risk market that has a “very well-capitalized banking sector and great sovereign credit” and is “relatively more supply-constrained than some G7 markets.”

More than 40 per cent of QuadReal’s portfolio is Canadian, which Manley considered somewhat overweight, but he’d like it to stay in that range. The United States can’t be ignored, however, because it offers some higher yields than in Canada, it has a lot of assets with good growth trajectory, and deeper liquidity.

While KingSett Capital only raises money inside Canada, chief executive officer Rob Kumer said “Canadian institutions are much more bullish on Canada today than they have been in a long time” and some now attach a risk premium to the U.S.

“As population growth and immigration have turned from tailwinds to headwinds, that has softened my desire to be in Canada – specifically in multi-family REITs – in a meaningful way in the short run,” BMO Capital Markets VP and portfolio manager for global equity (real estate) Kate MacDonald said. 

“But I would say that, long-term, we remain very positive in Canada, albeit a little bit more selective from a property-type perspective at the present time.”

Holmes said the four-year average return for real estate in Canada is 1.6 per cent, versus public equity portfolios that have returned double digits. 

He doesn’t expect individual non-professional investors – who may be spooked about the depressed state of the condominium market or have read about some funds being in trouble – to return in a meaningful way until they’ve seen “at least a few quarters of positive value gains and some good returns.”

Real estate allocations

Manley said some of QuadReal’s fund peers have been reducing allocations to real estate, some through actively selling it in favour of things like infrastructure and private credit. He expects a lot of them to return, but there could be challenges with making deals work.

“The capital is there, but everyone wants core real estate and core-plus returns,” Manley said.

Real estate’s place in a diversified portfolio over the past 20 years has been slightly above fixed income, according to Holmes, as it was seen as a way to generate a solid income return with a bit of price appreciation. That’s changed somewhat recently.

“Instead of competing with fixed income, we're competing against infrastructure, private equity and some of these other historically higher returning segments for allocations and investment capital,” Holmes observed. “Real estate has significantly underperformed pretty much every other asset type over the last four to five years, as we've been through this downturn. 

“I fully expect that to change going forward, but as most investors look to history to inform their future investment strategy, it really is a tough case to be made for most investors for real estate now unless they take that forward view and look at relative valuations and understand we're probably at or through the bottom of the cycle here.” 

Holmes believes the prospects for income growth for high-quality real estate in Canada are better today than he’s seen in his 23-year career because investors can get in “at the bottom of the most significant downturn in Canadian real estate we've seen for 30-plus years.” 

MacDonald has seen a global investor survey showing institutions are planning to increase their real estate allocations in 2026 from 10.7 to 10.8 per cent, while other surveys have reported similar information.

REITs and development

“More active cadence to transactions should lend itself to better confidence and conviction around REIT net asset value per unit, which has been devoid in recent years,” MacDonald said.

REIT returns have been better so far in 2026 than over the past four years, helped in part by January’s announcement of Minto Apartment REIT’s proposed privatization, MacDonald added.

Most REITs, even those with extremely strong balance sheets, are scaling back on development and MacDonald said stock buybacks have become a much more attractive option in the short run.

“There's a real dislocation in terms of a short-term focus dominating the real estate equity landscape, or the equity market more broadly today,” MacDonald said. “Private players are certainly more willing to look longer term, and that's created quite an interesting dislocation in the market.”

Since land prices are down 20 to 50 per cent from peak values, depending on the market and property type, Holmes thinks forward-thinking investors should consider buying it to build inventory for when circumstances improve and rents achieve the levels needed to justify development.