2025 RealREIT Conference: Unexpected opportunity amid ongoing uncertainty

The 2025 RealREIT Conference delivered expert insights in presentations from more than 45 industry leaders to assess and find practical solutions for the hardest challenges facing the Canadian real estate market. From industry executives to building owners, developers, and investors, this year’s conference brought together leaders from across the country to dive into how REITs have been navigating the changing landscape and what the industry might be facing in the year ahead.

While several economic and social factors present ongoing struggles for Canadian REITs, new opportunities have presented themselves for investment across the sector.

Interest rate drop stokes cautious optimism

Despite the Bank of Canada dropping interest rates in 2025, the sector has not fully rebounded, but time will tell if predictions for its impact may still come to fruition. Many presenters at the conference agreed that interest rates are not anticipated to increase by the end of 2025, while one predicted three further cuts by year-end, which has since proven to be on the right track.

Decreasing interest rates, inflation hovering at 1.8 percent this year and expected to be around 1.9 percent next year, and a slight appreciation of the Canadian dollar all present important tailwinds to support a positive impact on the real estate sector.

However, population growth continues to decline since its peak in 2023, costs of construction remain high, and homebuilders’ sentiment remains low despite falling interest rates. Furthermore, mortgage renewals could prove to be a challenge for household spending, depending on mortgage type and borrower profile, but lenders seem to be working with borrowers on this front.

Sector performance: Who’s thriving and who is struggling

In 2025, some strong performing sectors are:

• Seniors housing: At the front of the pack for at least the second year in a row, seniors housing is the top-performing sector. Seniors housing is the only sector trading at premium to net asset value.
• Retail and industrial: Retail and industrial subsectors are trailing seniors housing, but retail has held its’ own this year by leading industrial, where the sector average is holding at -10 percent net asset value per unit (NAVPU). Seniors housing is averaging 2 percent and industrial is averaging -20 percent.
• Office properties: In a surprising shift from 2024, office properties have improved, with decreased vacancies as part of a move to bring employees back into the office. Despite this increase, its average subsector NAVPU is sitting at -15, a significant improvement from prior years.

Where the weaknesses lie:

• Residential properties: Facing oversaturation from projects that started during peak immigration and demand – which have both since decreased significantly – residential properties are seeing challenges due to affordability issues and slower population growth. The NAVPU subsector average is currently at -21 percent.

Future trends and outlooks

Purpose-built rentals on the rise

As the broader economic outlook remains uncertain, affordability will likely continue to be a challenge for most Canadians. Purpose-built rentals are high, which should keep housing starts somewhat elevated, and despite a recent decrease in average rents, overall growth should stay positive.

Real estate remains strong investment strategy

Private equity is valuing properties at a premium to public markets, suggesting REITS are undervalued and that long-term holding may be beneficial as fundamentals remain strong. Despite a rise in new, non-tangible assets and investments in recent years, real estate continues to hold strong.

Affordability challenges persist

Housing affordability is the most challenging in Ontario and British Columbia, while Alberta is currently the most affordable province in the country.

Affordability should improve but will remain stretched going forward, with high construction costs continuing to impact both the residential and non-residential sectors.

In an unexpected and very rare turn, mortgage arrears and insolvencies are currently higher in Ontario than in Quebec, highlighting regional affordability pressures. Additionally, young Canadians are experiencing significant debt, with homeowners in that age bracket are struggling the most to pay off their mortgages.

Final thoughts

Overall, conference presentations illustrated that despite challenges the outlook is more positive than expected, with defensive strategies in real estate likely to pay off for long-term investors. With the potential for interest rates to drop further, Canada’s economy may see a rebound, with housing starts and general affordability closely tied to that outcome.

Despite an evolving and uncertain economy, the attitude amongst industry leaders moving forward is one of cautious optimism with the expectation that fundamentals will eventually be recognized by market investors.