In today’s unpredictable commercial real estate landscape, Canadian investors are facing a range of challenges, from rising construction costs to shifting political dynamics. The CBRE Capital Lenders’ Forum, held on February 25th in Toronto, brought together key players in the industry to discuss the effects of global tariffs, particularly those levied by the Trump Administration, and their potential impact on Canada’s real estate market. While panelists acknowledged the difficulty in predicting the outcome of these changes, they also highlighted several emerging opportunities for savvy investors.
The New Reality of Tariffs and Their Impact on Development Costs
Discussions focused on the uncertainty of how tariffs on U.S. imports, particularly construction materials, would affect the Canadian commercial real estate market. Many experts expressed concern that retaliatory tariffs from Canada could increase the cost of essential building materials, including steel, appliances, and HVAC systems. This could lead to a rise in development costs, especially in the residential sector. For developers, this could result in a 4% increase in overall development expenses, a figure that, while concerning, is not insurmountable.
However, industry leaders remained optimistic about Canada’s future in the real estate sector and focused on the importance of maintaining a pro-growth agenda in Canada, regardless of external factors like tariffs, highlighting the potential for internal reform to counteract some of the negative effects of global trade disruptions.
The Office Market: Repositioning and Reimagining Spaces
While many sectors of the real estate market are adapting to shifting economic conditions, the office market is also undergoing transformation. One notable success story is KingSett Capital’s repositioning of Scotia Plaza, a high-profile office tower in Toronto. With significant vacancies following Scotiabank’s relocation, KingSett and its partners invested heavily in the building’s renovation, transforming it into Canada’s first Zero Carbon Performance-certified office tower. The result? Full occupancy, with all of Scotia Plaza’s once-vacant office space now leased.
This success demonstrates the potential for investors to breathe new life into underperforming office assets through strategic repositioning and modernization. By focusing on sustainability, premium amenities, and high-quality service, investors can transform older office buildings into sought-after spaces for tenants, even in a challenging market.
Looking Ahead: A Bright Future for Canadian Real Estate
Despite the challenges presented by tariffs, rising construction costs, and geopolitical uncertainty, real estate investors in Canada remain optimistic about the long-term prospects of the market. While it’s crucial to stay informed and flexible, the Canadian market offers numerous opportunities for those willing to take a strategic approach. Whether through multifamily housing, affordable housing development, or repositioning office spaces, there is ample potential for growth.
In conclusion, Canada’s real estate sector may be navigating a period of uncertainty, but for those who take a long-term view and remain adaptable, the next decade could prove to be a lucrative one. For real estate investors, now is the time to act.