The Canadian real estate market in 2025 is shaped by a convergence of factors, including shifting economic conditions, strategic investments, and an evolving regulatory environment. While challenges such as rising interest rates and housing affordability persist, market leaders are adapting with resilience and innovation. With insights from the Emerging Trends in Real Estate® United States and Canada 2025 report, we explore the critical factors influencing the market and provide a roadmap for industry professionals to navigate the year ahead.

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Stabilizing After a Volatile Period

The Canadian economy faced significant challenges throughout 2024. Rising interest rates, inflationary pressures, and global uncertainties—primarily stemming from geopolitical instability—marked a period of market volatility. According to industry experts, this environment created difficulty in asset valuation and market positioning. Frank Magliocco, national leader for private clients at PwC Canada, pointed out the "lock" on market activity during this phase, with a significant slowdown in transactions due to uncertainty regarding property valuations.

As we enter 2025, there is a shift toward optimism. With inflation projections falling below 2% and interest rates easing in late 2024, Canadian consumers and investors are beginning to feel more confident. By November 2024, Canada's consumer price index (CPI) stood at 1.9%, signaling a stabilization that sets the stage for more active market behavior in the coming year.

The Bank of Canada (BoC), having reduced interest rates five times throughout 2024—from a peak of 5% to 3.25%—is expected to continue easing rates throughout 2025. This shift will support broader economic stabilization, particularly in real estate markets. While low interest rates often stimulate demand in the real estate sector, they also result in greater market competition and price volatility, making it critical for investors to remain adaptable.

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Key Real Estate Trends in 2025

The real estate landscape in 2025 is influenced by three major trends: unlocking value through strategic investments, addressing the affordability crisis, and advancing sustainability and climate resilience. Industry experts agree these trends will significantly shape the market's performance and opportunities in the near future.

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1. Unlocking Value Amid Deal and Capital Constraints

Private investors, particularly family offices and private equity firms, are expected to lead the market in 2025, with institutional investors—including pension funds, insurance companies, and REITs—taking a more cautious approach due to high capital constraints. The lack of liquidity during 2024 created a capital "gap," which many investors are still navigating. This shift is compounded by challenges related to rising borrowing costs and geopolitical uncertainties that have affected global investment flows.

However, as conditions stabilize and the interest rate environment improves, the availability of capital is expected to increase, allowing for more fluid market activity. As Veronica Maggisano, vice president of development at Oxford Properties, explains, the decline in interest rates over the past year sets the stage for a recovery in the market, particularly as investors start to implement new strategies that focus on maximizing the value of existing real estate assets.

Oxford's strategic shift includes investing in purpose-built rental housing, a segment that is particularly appealing as urban areas continue to experience population growth. For instance, Oxford is targeting mall redevelopment sites, where available parking facilities can be converted into much-needed housing. This innovative approach reflects the growing interest in adaptive reuse projects, allowing investors to create value from underutilized properties in major urban centers.

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2. Tackling the Housing Affordability Crisis

The affordability crisis remains a persistent challenge within the Canadian real estate market. Homeownership has become increasingly out of reach for many Canadians due to escalating property prices and rising construction and land costs. This challenge is further compounded by stringent zoning regulations and a slow-moving approval process for new developments. As a result, finding ways to expand housing supply is a critical focus for industry stakeholders.

Government actions aimed at addressing affordability have yet to produce substantial outcomes. While local governments have made progress in increasing supply, regulatory bottlenecks and high construction costs continue to hamper the creation of affordable housing. However, the demand for rental housing is expected to increase as interest rates stabilize, with institutional investors focusing on multifamily housing as a potential avenue for yield generation.

Despite these hurdles, industry experts suggest that new models for affordability will likely emerge in 2025, focusing on private-public partnerships and increased collaboration across municipalities. Strategies such as reducing land costs, simplifying zoning laws, and fast-tracking development permits could be effective ways to increase housing availability and make housing more affordable in key urban areas.

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3. Building Sustainability and Climate Resilience

As climate change becomes an increasingly pressing issue, sustainability is no longer a secondary consideration in real estate development—it is now central to investment strategy. Real estate leaders recognize that decarbonizing properties and ensuring climate resilience are critical for long-term value retention. This trend is especially important given the rising incidence of extreme weather events and growing environmental regulations.

Companies like Oxford Properties are ahead of the curve in implementing sustainability measures across their portfolios. Their development strategy includes retrofitting buildings to meet high environmental standards, such as energy-efficient heating and cooling systems, water conservation initiatives, and the integration of green spaces. Additionally, Oxford is addressing climate-related risks by ensuring that their properties are resilient to physical risks like floods, fires, and extreme temperatures.

CPP Investments, a global leader in institutional investment, shares this outlook. Janet Chung, director of real estate investments at CPP Investments, notes that reducing carbon emissions and ensuring long-term resilience is a priority for the organization. As investors become more attuned to environmental risks, properties with strong sustainability features will continue to outperform the market.

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4. Regional Performance and Investment Opportunities

While the Canadian real estate market is facing challenges, some regions are expected to outperform others in 2025. Calgary, Vancouver, and Toronto continue to be top destinations for investors. Calgary's real estate market has experienced a resurgence in interest, particularly in the office property sector, despite broader market challenges. The energy sector’s recovery is expected to fuel further investment in Calgary, especially in real estate.

Toronto remains the most active real estate market in Canada, with institutional investors continuing to favor the city’s large-scale developments, such as major office complexes and mixed-use projects. The city’s robust infrastructure, population growth, and economic stability make it a highly desirable location for long-term investment. However, market experts warn that Toronto’s affordability challenges persist, particularly for first-time homebuyers.

Meanwhile, Vancouver has seen a surge in foreign capital, particularly from offshore investors, which is expected to continue in 2025. This influx of capital is contributing to the growth of the city’s commercial and residential real estate markets, although affordability issues remain a concern.

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Strategizing for Success in 2025

The Canadian real estate market in 2025 is a complex landscape of opportunities and challenges. Investors must remain agile, recognizing that while some areas are experiencing growth, others are navigating serious affordability and regulatory hurdles. The shift towards value-driven investments, alongside the growing emphasis on sustainability and climate resilience, will define the market’s trajectory in the coming year.

Real estate professionals must consider factors such as regional dynamics, regulatory changes, and investor priorities when developing their strategies for 2025. By staying informed, collaborating across sectors, and embracing innovative solutions, industry leaders can navigate the complexities of the market and seize the opportunities that lie ahead.