Investment volume in Canadian commercial real estate declined in 2024, but not across the board.
Total investments in office assets fell 40% year over year in the first nine months to $2.78bn, according to CBRE data, while industrial sales dropped 43% to $9.22bn.
On the other hand, multifamily volume jumped 46% to $8.52bn, and retail property deals were up 28% to $5.32bn. Hotel sales were up 98% to $1.18bn.
What does next year have in store? Green Street News asked five executives what trends they’re watching going into 2025.
Harley Gold, managing director, Peakhill Capital
“Going into 2025, we still see challenges in the condo development market and expect continued asks for mezzanine or preferred equity”
In 2024, we have seen a large improvement in office utilization by tenants as companies have brought back employees. We expect 2025 to continue this trend, bringing back office demand in AAA office space in major markets.
Cap rates have increased in office the past few years, potentially now to a point of stabilization, therefore I expect financing interests for office to improve in 2025. It will still be a challenging financing environment for office assets, but we do believe there will be an improvement to a long-term recovery.
Going into 2025, we still see challenges in the condo development market and expect continued asks for mezzanine or preferred equity. Developers have exhausted capital calls amongst their investors and are seeking additional capital to keep projects afloat. End values in residential have not stabilized yet. However, it’s possible they will by the end of 2025 as rates significantly lower.
Some projects will end up in receivership in 2025, while others will have to convince lenders to extend or seek higher costs of capital in the mezzanine or preferred-equity space.
Dustin Greiver, managing partner, Balmoral Capital
“For developers with completed projects, expect to see an uptick in inventory financings to allow them to repatriate trapped equity and sell patiently as the market improves”
According to Urbanation, unsold condo inventory in the Greater Toronto and Hamilton Area reached a record high of 25,893 units in mid-2024. Exacerbating the issue is a growing number of preconstruction buyers pursuing assignment sales. So there is a glut of brand-new, unsold inventory that new projects are forced to compete with.
For developers with completed projects, expect to see an uptick in inventory financings to allow them to repatriate trapped equity and sell patiently as the market improves.
For developers with new projects, we certainly expect some pivot to purpose-built rental, but generally only those wherein the investor base is comprised of more patient capital with a longer investment horizon. The margins are still tight, and the recent CMHC changes as of Nov. 15 are not helping the case.
In many cases, lenders will work with developers, with our help, to structure mutually beneficial solutions while the inventory clears out and the market improves. This includes extended pre-development loans and construction facilities with lower presale thresholds.
Expect to see more for-sale construction loans with declining mezzanine structures, in which a senior loan is paired with a mezzanine facility that is funded first and is paid down by the senior loan as sales trickle in. This allows for construction starts with lower presales, without causing financing costs to balloon too substantially.
Jonah Brown, managing partner, Oakbank Capital Group
“In light of the recent changes to the CMHC program, we are seeing an increasing number of developers opt for conventional financing, despite higher borrowing costs”
We have seen an increasing number of developers look to secure conventional, non-insured construction financing instead of lower-cost alternatives from the Canada Mortgage and Housing Corp.
In December 2021, CMHC announced the launch of the MLI Select construction program, which aimed to incentivize rental development by offering developers favorable conditions. By opting into one or more of the three categories – affordability, accessibility and energy-efficiency – developers were eligible for high-leverage financing (up to 95% loan-to-cost) and competitive interest rates.
In June 2024 [and] then again in November 2024, CMHC announced a series of changes that significantly reduced its previous advantages, most notably that many loans are being capped at 75% LTC during the course of construction.
The application process for CMHC financing has always been demanding, requiring substantial lead time and due diligence – an onerous process to navigate. Meanwhile, conventional, non-insured lenders have always offered loans in the range of 75% LTC, so long as cashflow can support it and can be secured more easily and quicker than CMHC.
In light of the recent changes to the CMHC program, we are seeing an increasing number of developers opt for conventional financing, despite higher borrowing costs. Given the net leverage is the same, the additional cost is offset by the uncertainty and rigid framework of pursuing CMHC. We anticipate this trend to continue and intensify throughout 2025.
Mary Gagliardi, managing partner, Reap Capital
“The reduced LTV ratios also mean developers must raise more equity up-front, which can derail projects already stretched by extremely high construction costs. For those proposing market-rate housing or with limited affordability, meeting these stricter criteria becomes even more challenging”
The Canada Mortgage and Housing Corp. is quietly lowering loan-to-value ratios under its MLI Select program, making it harder for developers to secure financing. While the program previously promised loan-to-value ratios of up to 95%, recent approvals are coming back as low as 75%.
These reductions disproportionately affect less experienced developers and projects lacking strong affordability features. This is expected to continue into 2025 as CMHC continues to rework this program internally.
The lack of clarity is a significant issue. Developers often rely on CMHC’s published criteria to analyze the viability of their projects, but actual approvals frequently diverge from the stated guidelines. This creates uncertainty, as developers are left waiting for up to three months for CMHC to process applications – a period that can stall timelines and increase costs.
Adding to the frustration is the program’s nonrefundable application fee, leaving developers to absorb sunk costs even if their proposals are denied or significantly altered.
The reduced LTV ratios also mean developers must raise more equity up-front, which can derail projects already stretched by extremely high construction costs. For those proposing market-rate housing or with limited affordability, meeting these stricter criteria becomes even more challenging.
Mark Kay, president, CFO Capital
“While construction costs have risen, stable RevPAR growth ensures viable project returns, even in today’s pricing environment. All this has led to diverse regional opportunities, from urban centers like Toronto and Vancouver to growing secondary markets”
The Canadian hospitality market has shown stable revenue-per-available-room performance and modest yet consistent growth over the past several years. This resilience reflects a balanced recovery from economic fluctuations and underlines strong demand fundamentals. As market trends demonstrate, this environment provides a favorable foundation for new hotel developments.
Key factors driving this stability include domestic tourism growth, steady increases in international travelers and more corporate travel.
While construction costs have risen, stable RevPAR growth ensures viable project returns, even in today’s pricing environment. All this has led to diverse regional opportunities, from urban centers like Toronto and Vancouver to growing secondary markets.
