Real Estate Forum 2025: Comprehensive Insights on Economic Outlook, Industrial Assets, and Executive Predictions

The Real Estate Forum 2025 provided a deep dive into the North American economic landscape, with focused discussions on trade policies, housing challenges, industrial real estate performance, and forward-looking strategies from top executives.

Drawing from panels on US-Canada trade dynamics, the resilience of the Canadian industrial sector, and C-suite perspectives on market recovery and risks, this week’s newsletter covers key trends, challenges, and opportunities.

These insights blend macroeconomic analysis with sector-specific fundamentals, offering practical guidance for investors, developers, and stakeholders navigating uncertainty in tariffs, immigration shifts, capital markets, and asset class evolution.

Key Discussion Points

North American Economic Outlook: Trade, Tariffs, and Canadian Housing

• US Trade Policy and Tariffs
  • Trump’s Approach and Narrative: Two paths: ignore the political reality or build a coherent narrative beyond daily media noise. The chosen narrative: “Time is not on Trump’s side.” Each day erodes his bargaining power and control over economic outcomes. Notable shift: Initial lack of resistance to Trump’s policies, but recent legal and political pushback is emerging (e.g., courts blocking attempts to fire officials like Lisa Cook, federal appeals court limiting emergency tariff powers).
  • Tariffs: Here to Stay: Tariffs generate ~$320 billion in revenue, making them entrenched regardless of administration. They are not primarily about jobs or the trade deficit, but about government revenue. Even Democratic administrations are unlikely to remove them due to fiscal incentives.
  • Legal and Political Constraints: If emergency powers are curtailed, Trump (or successors) could use Section 232 (national security) or Section 122 (balance of payments) to impose tariffs, though these require longer processes and Congressional approval. The effectiveness and threat of tariffs are diminishing over time; rates are dropping from 25% toward 9%.
  • Impact on US Economy and Consumers: Tariffs function as an invisible tax on US consumers, with inflationary effects becoming more visible over time. Example: 47% of US aluminum is imported, mostly from Canada—demonstrating US dependence on trade partners.
  • China Relations: China is steadfast in trade disputes, with high tolerance for economic pain. Example: 90% of US antibiotic consumption comes from China, giving China significant leverage. Trump ultimately had to compromise, highlighting China’s bargaining strength.
• US Economic Conditions
  • Growth Drivers: AI investment is sustaining economic growth: 70% of first-half growth came from software and IT equipment. Outside AI and tech sectors, the US economy shows signs of recession, especially in consumption and non-tech industries.
  • Federal Reserve Policy: The Fed is expected to cut rates further (by 50–75 basis points over six months) to support the economy, accepting temporary inflation above the 2% target.
• Canadian Economic Snapshot
  • GDP and Growth Quality: Q3 growth appeared strong (2.6% GDP), but was driven by a drop in imports rather than healthy consumption or investment. Final domestic demand is flat, indicating underlying economic weakness.
  • Labor Market and Monetary Policy: Labor market is stagnant: no hiring, no firing, but high youth unemployment (15%). The Bank of Canada is unlikely to cut rates soon, despite low inflation (actual inflation likely below 2% when measured accurately).
  • Regulation and Fiscal Policy: Excessive regulation (adding ~5,300 new regulations annually) is stifling growth. Recent budget focuses on long-term benefits (infrastructure, defense), but offers little immediate stimulus.
  • Defense Spending: Emphasis on the “defense multiplier”—investing in productive, innovative defense projects yields economic benefits (e.g., military technologies adapted for civilian use).
• Canadian Housing and Mortgages
  • Mortgage Stress Ahead: 2026 will see 5–6% of mortgages face >40% increase in financing costs as refinancing becomes harder, especially in Ontario and Vancouver. Delinquency rates are rising but remain manageable; lenders are adapting (e.g., extending amortization).
  • Housing Affordability and Demand: Affordability is slowly improving as prices stabilize and more “doubling up” households (multiple families per dwelling) begin to dissolve, creating new demand. Government actions to stimulate supply (e.g., cutting development charges, GST relief) were discussed but not implemented—seen as a missed opportunity.
• Immigration Trends
  • Recent Surge and Policy Correction: 2023 saw a record 1.5 million immigrants, mostly students and non-permanent residents—a pace deemed unsustainable. The government is now slowing intake, which is impacting institutions dependent on international students.
  • Quality over Quantity: 52% of new immigrants now arrive from within Canada (e.g., students transitioning to permanent status), meaning they already have Canadian experience and are more productive. These newcomers are more likely to buy homes quickly, supporting the real estate market.
• Outlook and Conclusions
  • 2026 as a Transition Year: Canadian interest rates will remain low but not fall further until at least 2027. Fiscal stimulus and eventual clarity on US trade policy (post-election) will help lift growth. Key growth drivers: stable rates, increased government spending, and improved certainty after US elections.
  • Housing Market Fundamentals: Despite short-term stress, underlying demand remains strong due to immigration quality, reduced doubling-up, and eventual policy support.
  • Final Thoughts: The economic environment is in flux, with structural shifts in trade, technology, and demographics shaping both the US and Canadian outlooks. The next two years will be marked by adaptation—both to persistent tariffs and to evolving housing and labor market dynamics.

Canadian Industrial Real Estate: Performance, Challenges, and Outlook

• Market Performance & Resilience
  • Canadian Industrial Market Resilience: Despite macro headwinds (tariffs, reduced immigration, economic uncertainty), the sector remains robust. Absorption rates are positive, and both Class A and B assets are performing well.
  • Vacancy & Absorption: Canadian average industrial vacancy is half that of the US. Canadian net absorption has tripled year-over-year, signaling strong tenant demand. Example: Toronto’s vacancy is ~3%; comparable US markets (e.g., Dallas, Atlanta) are at ~9%.
• Demand & Leasing Fundamentals
  • Leasing Activity: Early 2024 saw hesitancy due to tariffs, but Q3 experienced a surge in leasing velocity, especially in Toronto. Multiple offers on vacant spaces indicate a reached “floor” for rents, with slight upward movement in some submarkets. Build-to-suit market is active (e.g., Broccolini has 7 ongoing projects).
  • Federal Incentives: Recent federal budget allows 100% capital expenditure write-offs for manufacturing/processing, expected to stimulate industrial investment.
  • Regional Nuances: Alberta: More measured rent increases (only 25% vs. Toronto’s doubling), stable land values, vacancy rates never exceeded 5%. Large spaces remain vacant longer, but deal velocity is increasing. GTA: New inventory is pushing up average asking rents; spec completions scheduled for 2025.
• Asset Classes & Rent Dynamics
  • Second-Generation vs. Class A: Second-gen (mid-bay, small-bay) assets see a wider rent spread with Class A, but gap narrows for smaller units. Example rents: Mid-bay renewals at $14–16/sf, small-bay at $17–19/sf, micro-bay pushing $19–20/sf. Escalators have moderated from 5% (2022) but remain significant.
• Investment & Capital Markets
  • Deal Volume & Cap Rates: Toronto expected to reach ~$2B in deal volume, over half of Canada’s total, up $500M from last year. Cap rate spreads have widened due to higher debt costs; rents have flattened, reducing arbitrage opportunities.
  • Investor Types: Institutional and fund manager activity is increasing, but foreign investor participation remains low due to development timelines and complexities. Private capital is more flexible, often stepping in for smaller, value-add, or partially vacant assets.
  • Bid Depth: Core markets (Toronto, Montreal) see strong bid depth (dozens of offers for stabilized assets), but depth drops in secondary markets or for larger deals.
• Development Pipeline & Outlook
  • Supply Constraints: Construction starts are falling; new supply will be limited in next 2–3 years. Market normalization expected, with no risk of vacancy surges (projected to stay below 6–7%).
  • Spec Development: Developers favor Toronto and Alberta for new projects; Vancouver less likely due to strata and supply constraints. Calgary and Edmonton remain positive for development due to resilience and available land.
  • Industrial Condos: GTA’s industrial condo market is growing but still lags Vancouver in terms of new construction and absorption due to land and zoning constraints.
• Drivers of Future Demand
  • Flight to Quality: As leases signed during the COVID-19 boom roll over (2024–2026), tenants will seek newer, higher-quality space, driving demand for Class A product.
  • 3PL & E-commerce: New 3PL entrants from China are active in GTA and US markets, taking significant space. Consolidation among major 3PLs and increased e-commerce penetration continue to drive space requirements.
  • Macro Factors: Population growth, nearshoring, and proximity to transit hubs sustain long-term demand, especially in core urban markets.
• Investment Strategies & Market Outlook
  • Canadian vs. US Markets: Canadian market offers attractive entry points, with cap rates only 25–50 bps tighter than US, despite US base rates being 100 bps higher.
  • Risk & Opportunity: Near-term softness in demand is seen as cyclical, not structural; long-term fundamentals remain positive. Investors are advised to focus on micro-locations, core markets, and opportunities arising from pricing recalibration and capital sidelining.
  • Private vs. Institutional Capital: Private capital thrives in niche, smaller, or value-add projects where institutional capital is less active. Flexibility in deal structure, leverage, and partnership is key for private players.
• Regional Snapshots
  • Toronto/GTA: Strongest market for leasing and investment; robust bid depth and ongoing development.
  • Alberta (Calgary/Edmonton): Stable, with measured growth; developers optimistic about future absorption.
  • Vancouver: Limited new spec development; industrial condo market more mature than Toronto.

C-Suite Predictions: Market Recovery, Opportunities, and Risks

• Market Recovery: Status & Triggers
  • Mixed Recovery Signals: Initial expectations for a 2025 recovery were unmet; the recovery is now seen as gradual, not V-shaped. Canada entered the downturn later and is recovering more slowly than some global peers.
  • Key Recovery Drivers: Capital Markets Healing: Significant increases in CMBS issuances and lower borrowing costs (down 40% from highs); Blackstone had its largest debt year ever. Transaction Activity: Still ~25% below pre-COVID averages, but up 20% over the past year. Operating Fundamentals: Strong NOI growth, especially in industrial and residential sectors; focus on operational efficiency and cost control. Construction Slowdown: Halted new development (except for data centers) will support fundamentals in the coming years.
  • Divergent Regional Performance: Toronto office leasing has improved significantly; other markets (Calgary, Montreal, Vancouver) lag behind. Retail and industrial sectors are robust; malls and residential buildings are near full occupancy.
  • Sentiment: Some panelists believe the inflection point has passed and fundamentals are strong. Others caution about unknown risks and regional disparities.
• Investment Opportunities & Strategies
  • Asset Classes with Most Potential (Next 5 Years): Land: Seen as undervalued and a long-term opportunity, albeit risky due to current residential market distress. REIT Units: Public markets undervalue strong fundamentals, presenting buying opportunities. Office (Selective): Focused on well-leased, newly renovated assets at significant discounts (e.g., Midtown Manhattan, San Francisco, Tokyo, Paris). Canada: Still attractive for core and core-plus, but less competitive in alternative asset classes (e.g., data centers).
  • Portfolio Diversification: Shift from office/retail-heavy portfolios to more multifamily and industrial assets for risk mitigation.
  • Capital Flow Trends: Current buyers are predominantly Canadian private capital and family offices; institutional capital expected to return as valuations adjust. Foreign interest is present but limited by regulatory and tax barriers.
• Risks & Challenges
  • Canadian Market Risks (Next 5 Years): Government Policy & Debt: Success of public investment in infrastructure and diversification depends on achieving expected growth. Regulatory Certainty: Speed and predictability of approvals are critical, especially for data centers and large developments. Social Fabric: Concerns about social cohesion, public safety, and urban livability, particularly in major cities like Toronto. Global Competition: Canada is less competitive in alternative asset classes due to scale and structural impediments.
  • Bid-Ask Spread & Transaction Dynamics: Increased bidding depth is narrowing price spreads, especially for smaller assets (<$200M). Larger transactions remain challenging due to a limited pool of buyers.
• Government Policy: What’s Working & What’s Not
  • Positive Developments: Shift in government focus from taxing to incentivizing housing development (e.g., HST/GST waivers, cheap financing, grants). Some municipalities (e.g., Calgary) are expediting approvals and facilitating development.
  • Ongoing Barriers: Slow entitlement and permitting processes, high carrying costs for land, and lack of municipal infrastructure investment. Calls for more efficient allocation of government funds directly to proven development needs.

Conclusion

The Canadian real estate market is normalizing after a period of rapid growth and heightened volatility, yet it continues to demonstrate remarkable resilience, with particularly strong fundamentals in the industrial and residential sectors positioning the market for a sustained recovery.

The period from 2025 through 2027 is expected to bring tightening supply, renewed transaction volume, and increasingly landlord-favorable conditions as the current macroeconomic headwinds gradually subside.

While the outlook is one of measured optimism, it remains tempered by realism—success will depend on disciplined, adaptive strategies, a continued focus on core markets and micro-locations, and capitalizing on powerful long-term structural drivers such as high-quality immigration, nearshoring trends, and Canada’s strategic proximity to major transit and population hubs.

For a confidential consultation or a complimentary opinion of value of your property please give us a call.

Until next week…

Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 30 years.

Goran Brelih is an Executive Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.

Over the past 30 years, he has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars while averaging between 40 and 50 transactions per year and achieving the highest level of sales, from the President’s Round Table to Top Ten in GTA and the National Top Ten.

Specialties:
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development

About Cushman & Wakefield ULC.
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries.

In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.

For more information on GTA Industrial Real Estate Market or to discuss how they can assist you with your real estate needs please contact Goran at 416-756-5456, email at goran.brelih@cushwake.com, or visit www.goranbrelih.com.

Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih