My Takeaway From This Year's RealtorQuest - Commercial Real Estate Seminar

Earlier this month, I had the opportunity to attend RealtorQuest, the Toronto Regional Real Estate Board’s (TRREB) flagship event. One of the most insightful sessions featured Jason Mercer, TRREB’s Head of Research, alongside Ray Wong, VP of Data Operations at Altus Group. Their joint presentation offered a deep dive into the current state of commercial real estate, across all asset classes.

The key takeaway? The mood across the sector is one of caution. While long-term fundamentals remain intact, uncertainty is freezing decision-making. A confluence of global and domestic headwinds—trade tensions, elections, geopolitical instability, and unpredictable fiscal policy—has led many investors and tenants to hit the “pause” button.

Economic Anxiety is Shaping Market Sentiment

Before the introduction of tariffs and trade friction, Canadians were primarily focused on five issues: housing affordability, healthcare, the economy, interest rates/inflation, and immigration — according to an IPSOS poll for TRREB. Now, with attention on U.S. political dynamics and Canadian protectionism, the economic mood has shifted from “cautious optimism” to “wait and see.”

Consumer sentiment mirrors this shift. Fewer than 40% of Canadians believe the economy is in good shape—a decline that’s been building over the past decade. For many would-be homeowners, affordability is out of reach. With 5-year variable rates hovering around 4.5%, a first-time buyer would need a household income exceeding $150,000 to afford a $1 million home. Compare that to the GTA’s median household income of just $102,898 and an average price tag of $1,107,463 it’s clear why buyer activity has slowed — simply unaffordable.

Recession Forecasts Are Growing Louder

Leading economists are sounding the alarm. Oxford Economics now predicts that a Canadian recession is almost inevitable, driven by declining business investment, global trade shocks, and a slowdown in immigration. Their forecast, echoed by Fitch Ratings, anticipates three consecutive quarters of GDP contraction from Q2 to Q4 of 2025. So, we’re in a recession as you read this in May.

The anticipated impacts?

• Layoffs and job losses (forecasted up to 102,000 and a 7 - 8% Unemployment Rate)

• Rising costs due to tariffs and supply chain disruptions (Inflation could reach 3% by mid-2026)

• Equity market volatility

• Weakened consumption and housing demand (GDP to grow by under 1% in 2025 & 2026)

These pressures are compounded by underlying imbalances in Canada’s economy: overleveraged households, inflated property prices, weak private sector investment, and sluggish productivity. The government may need to ramp up infrastructure spending to offset GDP declines, which could increase public debt and drive up borrowing costs.

Real Estate: A Lagging, Data-Driven Sector

Jason Mercer and Ray Wong emphasized that real estate typically lags broader economic trends. Decisions are made based on market data that can be several months old. From sourcing a deal to negotiating, it can take 6–9 months for a transaction to be finalized—and up to another 3 months for it to close and show up as a deal comparable used for future underwriting; that’s almost one year old data.

Today’s uncertainty is only lengthening that lag. With fewer transactions being completed, the industry is struggling with a shortage of reliable data to base decisions on. When investors can’t forecast beyond the next Bank of Canada announcement, they tend to hold back.

May 2025 Market Snapshot: Mixed Signals Across Asset Classes

Despite overall market stagnation, some sub-sectors are showing pockets of resilience. Here's how Q1 2025 activity compares year-over-year and to pre-pandemic levels:

Industrial

• Nationally: +60% in value vs. pre-pandemic; Flat quarter-over-quarter

• Locally: +26% year-over-year in GTA dollar volume
  Investors still believe in the long-term fundamentals of industrial.

Retail

• Nationally: -9.3% in value vs. pre-pandemic; +0.74% quarter-over-quarter

• Locally: +59% year-over-year in GTA dollar volume
  Food-anchored retail and redevelopment-focused shopping centres are driving demand.

Office

• Nationally: -20.1% in value vs. pre-pandemic; -0.48% quarter-over-quarter

• Locally: -38% year-over-year in GTA dollar volume
  Despite signs of stabilization, the sector remains challenged due to hybrid work and rising vacancy.

Multifamily

• Nationally: +12.3% in value vs. pre-pandemic; -0.03% quarter-over-quarter

• Locally: -25% year-over-year in GTA dollar volume
  Investors are on the sidelines, waiting for more favorable financing conditions.

Conclusion: The Capital Is There—But Confidence Isn’t

There’s no shortage of investment capital waiting to be deployed. But without economic clarity, stable interest rates, and better data, many investors are choosing caution over action. The prevailing mindset is “wait and see.”

Without the current trade war and geopolitical tension, valuations would likely be stronger—especially with interest rates previously trending downward. But today, even historically strong asset classes are feeling the effects of delayed decision-making and economic hesitation.

As we move through 2025, all eyes will remain on macroeconomic indicators and central bank decisions. Until then, real estate—always a lagging sector—will likely continue its slow march forward, shaped by forces well beyond property fundamentals.

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