February 2026 PREP Sheet Commentary

Each month, we publish this list of indicators — a blend of leading and lagging signals — to help you PREPare for the real estate market ahead.

At first glance, February shows more green “down” arrows than red. In most environments, that would suggest broad improvement. This month, however, the signal is more nuanced.

February reflects a market transitioning from rate-driven optimism to data-dependent discipline.

Executive Summary

• Rate relief momentum has paused; markets are recalibrating rather than easing further.

• Credit conditions remain constructive, but underwriting standards remain firm.

• Office stress persists; retail and industrial remain comparatively stable.

• Transaction activity is improving selectively — not broadly.

Capital Markets & Macro Backdrop

Compared with January 2026, this month’s PREP Sheet reflects the Bank of Canada’s decision to hold front-end policy at neutral levels, signalling that the rapid phase of monetary easing is likely behind us — at least for now.

According to CMHC’s 2026 Housing Market Outlook, Canada’s GDP growth is projected to slow to 0.7% in 2026, making it one of the weakest non-recession years in decades. That leaves open the possibility of policy reassessment later in the year should economic momentum weaken further. However, monetary policy operates with delay. The Bank of Canada’s own research suggests each rate decision takes 18 to 24 months to be fully reflected across the broader economy. Milton Friedman famously described these transmission effects as “long and variable lags,” a concept he began advancing in the late 1950s. In practical terms, much of 2026 will reflect the cumulative impact of prior decisions rather than immediate new action — reinforcing a wait-and-observe environment.

Bond markets appear to be adjusting accordingly. Investors are reassessing inflation and growth expectations rather than aggressively pricing additional cuts. Five-year Government of Canada bonds are trading near 2.72%, while ten-year yields sit around 3.18%. Although receding from prior highs, these yields remain materially above the ultra-low levels that underpinned the compressed cap rates of the 2018–2021 cycle.

Credit spreads remain relatively contained, supporting lending liquidity. Yet lenders continue to differentiate sharply by asset class, sponsorship quality, and covenant strength. January’s narrative was “cheaper capital returning.” February’s tone is more measured: capital is available — but selective and cautious.

Real Estate Fundamentals

Labour and inflation data suggest cooling, not contraction. There is no abrupt deterioration in the Canadian economy; instead, we are observing gradual deceleration. That type of environment typically produces range-bound bond yields — likely within a 2.5% to 3.5% corridor for five- and ten-year terms — and correspondingly stable cap rates rather than sharp compression.

Across the GTA, vacancy rates remain broadly stable month-over-month. Multifamily fundamentals continue to hold within a manageable band, indicating durable rental demand despite softer employment conditions and moderating immigration. CMHC projects housing starts to decline from 259,000 units in 2025 to 247,000 in 2026, reflecting elevated construction costs and rising unsold inventory — factors that may constrain new supply but also temper price acceleration.

Industrial vacancy appears to be stabilizing after prior expansion, suggesting the sector may be nearing cyclical equilibrium. Retail remains structurally tight in well-located nodes — now a multi-quarter trend and one of the more notable reversals compared with early 2024 conditions.

Office continues to be the outlier.

While bond yields are receding, borrowing costs are adjusting downward incrementally, and cap rates are compressing modestly — all constructive signals for valuation stability — Greater Toronto Area pricing has not risen proportionately. The exception may be office, where early pricing stabilization raises the question: have we finally reached cyclical bottom?

For now, the evidence suggests stabilization — not resurgence.

Pricing & Capital Markets Perspective

Residential pricing remains subdued relative to 2025 averages, reinforcing that lower policy rates alone are insufficient to reignite broad price acceleration. Demand for new housing is projected to remain below historical norms as affordability pressures and job uncertainty weigh on consumer confidence.

Cap rate movement this month appears incremental rather than dramatic. The extraordinary adjustment occurred during 2023–2024, when cap rates expanded materially from pandemic-era lows. What we are observing now is stabilization — not a renewed compression cycle.

The defining multi-year trend across the PREP Sheets is clear:

Financing costs have declined meaningfully from 2024 peaks, yet asset pricing has not re-expanded proportionately.

That gap defines 2026. It reflects a market demanding durable income — not simply cheaper debt.

Risk Assessment

• Leasing Risk: Stabilizing in industrial and retail; contained in multifamily; elevated and structural in office.

• Valuation Risk: Moderate. Most repricing has occurred, though selective distress remains possible in over-levered office and transitional assets.

• Liquidity Risk: Improving relative to 2024 but still below peak-cycle norms.

• Macro Risk: Slowing growth without recession acceleration — manageable, but not benign.

Strategic Implication

These are not the conditions of a market poised for rapid expansion. They are the conditions of a market quietly resetting.

Disciplined buyers can act. The environment favors those who underwrite conservatively, negotiate firmly, and focus on income durability. Broad speculative appreciation is not the thesis. Selective, basis-driven acquisition is.

The best decision-makers don’t guess. If you’re leasing, relocating, buying, investing, or refinancing this year, I’ll help you pressure-test the numbers before you commit. Real estate is a long game — the right deal must work on paper and in real life.

Paramount represents tenants, buyers, and investors only (no conflicts of interest). The goal is simple: protect your downside, strengthen your position, and help you secure the right property at the right basis. Reach out when you’re ready.

Go on, entrepreneur — be great.