The future of commercial real estate is being debated as CRE investment slows in Canada.
Investment sales volume has declined, going from $12.3 billion in Q1 2023 to $8.5 billion in Q1 2025, a 31 per cent decline, according to a
Investment sales volume reflects sales across the country of primarily income-producing assets in commercial and multi-family real estate.
Co-author Robert Santilli, valuation advisory director with Altus, attributed the contraction to a mismatch between buyer and seller expectations.
“That’s a consequence of bid-ask spread between what buyers want to pay for a property and what the sellers are looking for,” he said.
Santilli also said the cost of capital and mortgage debt for institutions and private buyers has risen, after interest rates shot up in 2022 and 2023.
Another component is slowing fundamentals for asset classes like industrial, as well as a tariff-driven slowdown causing rents to soften, he said.
One expert says the basic nature of CRE may be changing.
Historically, CRE and particularly offices were considered secure assets that behaved like government bonds, and were priced to reflect similar risk levels, said Dror Poleg, author of Rethinking Real Estate (2019).
This was because those assets were backed by leases from large companies.
“If General Electric signed a lease 40 years ago for 15 years, you knew that those tenants were going to come in every month for the next 15 years. You could trust that,” he said.
But now, leases are becoming shorter, vacancy is being pushed up and the role of landlords is changing, he said.
“The buildings that are doing well today have many more amenities, many more services, many more all sorts of things that make them much more similar to an operating business rather than just like a rent-collection business,” he said.
Others, including Santilli, believe CRE will remain a safe haven and could even see greater investor interest in a flight to safety.
CRE offers many risk-reduction benefits, said Andrey Pavlov, finance professor with Simon Fraser University’s Beedie School of Business.
“It offers an excellent hedge against inflation. Because of this, investors are justified to view real estate as safer than typical corporate equity investment,” he said.
CRE should continue to deliver consistent returns, he predicted, even as economic policy uncertainty in Canada spikes according to the Federal Reserve Bank of St. Louis.
“We always face uncertainty. I don’t know if this is a particularly volatile period. Certainly episodes like the internet boom and bust, the 2008 financial crisis and the global pandemic were far riskier and more volatile,” Pavlov said.
“I don’t see anything in the current environment that puts commercial real estate at greater risk than during those recent episodes or than a standard investment in stocks and bonds.”
