Canada’s commercial real estate sector in the first half of 2025 was marred by uncertainty and hesitation, as the country entered a tariff war with its largest trading partner, political uncertainty grew globally and economic pressures mounted at home.
On the doorstep of the second half, though, markets appear poised for a fresh start.
A sense of “momentum and opportunity” is spreading across the country, Avison Young said in its Mid-Year Outlook. Released this morning, the survey of more than 150 of its market professionals paints a picture of increased confidence and clarity for the industry.
Nearly half of respondents expect overall real estate market activity to increase over the next six months. Some 54% expect a boost in office activity, 43% say retail activity will pick up and 35% predict more industrial deals to come.
“The headlines we were seeing were very negative, but when we speak with our professionals, who are interacting with clients on a daily basis, what we’re hearing is that people are moving forward with projects, and they anticipate continuing their activity for the second half of 2025,” Marie-France Benoit, principal and director of market intelligence at Avison Young, told Green Street News.
“The uncertainty is not as dramatic as it was earlier in the year. I think everyone is a bit more confident with the rest of the year.”
From a leasing perspective, the “flight to quality” trend will continue to drive the office market, with more concession packages, higher rents and increased leasing velocity pegged as markers to watch for in the sector.
While asking rents for industrial assets are expected to climb, tenants are unlikely to see as much of a financial impact, as fewer respondents anticipate actual rents to rise. That’s because concession packages are expected to also rise over the back half of 2025.
The sector remains the most vulnerable to the impact of tariffs, with nearly two-thirds of respondents expecting industrial markets to slip up to 4% between July and December. Still, industrial will hold the interest of developers above all other asset classes, with 31% of respondents predicting the sector to be their focus in the months ahead.
Roughly one-quarter expect multi-residential to catch developers’ eye, while 22% believe they’ll be aimed at special purpose assets. For developers that press pause, costs and tariffs will be the greatest contributing factor.
“Rental rates might not be going up at the same pace as they were, but there’s still super strong demand for industrial investment. And the demand for investment follows the demand from the user. The sector it’s showing good signs of recovery as people get more comfortable with what the future looks like,” Mark Fieder, principal and president of Avison Young Canada, told Green Street News.
“It’s come off its peak, but you can’t have a hockey stick forever.”
The industry’s optimism extends beyond leasing, with 88% of Avison Young professionals expecting investor interest to be somewhat or significantly higher in the latter half of the year.
Appetite varies by geography, with grocery-anchored retail assets proving most palatable in Vancouver, and multifamily properties grabbing top attention in Montréal, Edmonton and Calgary. Interprovincial migration is cited as a driving force for the latter two cities.
In Ottawa, transaction volumes are “higher than expected” amongst suburban office and retail assets. In Toronto and southwestern Ontario, investors are more opportunistic with their acquisitions, especially in the mid-market segment.
Regardless of property type, Fieder said the forecast shows momentum is bubbling.
“This survey gives a really good idea of the optimism out there. It started last fall. We began to see a recovery in Canada’s commercial real estate sector. But then the pause button got pushed,” he added. “But as we get through this, as the new federal government starts to show that we’re really improving, I think we’re going to build momentum and that’s what’s going to drive [activity] in the last part of the year.
“That’s what you’re seeing in this survey: We’re coming out of uncertainty and going into the back half of the year wanting to get some business done.”
