Canada's housing shortage spurs commercial real estate activity

Canadian builders tackle housing shortage with new developments

Canada's housing shortage spurs commercial real estate activity

Canada's severe housing shortage and surging population growth have ignited a commercial real estate frenzy, with builders and developers going "all-hands-on deck" to solve the country's housing shortage, according to a new report by RE/MAX Canada.

The 2024 Commercial Real Estate report examined 12 major markets and found an intensifying push for multi-family housing and industrial developments, in some cases overshadowing new condo and commercial builds.

"The overwhelming need for shelter, combined with the Canada Mortgage and Housing Corporation's (CMHC) Apartment Loan Program that has incentivized builders and developers with low interest rates, favourable terms, and 50-year amortization periods, have created the perfect storm in today's high-interest rate environment," said RE/MAX Canada president Christopher Alexander.

However, even with Canada's population surpassing 40 million this year and net international migration topping 1.2 million in 2023, Alexander said the residential construction boom still falls short of demand in most cities.

Across the board, the report identified multi-family rentals and industrial properties as the top performing asset classes, followed by retail in two-thirds of the markets surveyed. Farmland in Saskatchewan also saw record demand and pricing.

Key commercial real estate trends included:

  • Multifamily construction surge: Purpose-built rentals are the primary focus in urban centres, with student housing and seniors' residences also seeing growth due to government incentives.
  • High-density & mixed-use development: Mall and strip plaza owners are exploring residential components for their properties to increase density and create mixed-use developments.
  • Impact of capital gains tax increase: The 2024 budget's increase in the capital gains tax inclusion rate has prompted some investors to pull back from selling their properties.
  • Continued demand for industrial real estate: Tight inventory persists despite an influx of new space, with end users seeking warehousing, manufacturing, and flex space.
  • Resilience of brick-and-mortar retail: Neighbourhood retail is performing well, while luxury brands expand in major markets.
  • Farmland boom in Saskatchewan: Record commodity prices and tight supply drive up farmland values in Saskatchewan.
  • Hospitality industry revival: Increased travel and tourism have revitalized the hospitality sector in many regions.

Adaptive reuse of commercial buildings is also gaining momentum nationwide, with Calgary leading the way in converting office buildings into residential units.

"Density, population growth, and the housing crisis remain significant factors influencing market activity," Alexander noted.

He expects a gradual improvement in demand and conditions throughout 2024, with a positive outlook for the long-term, driven by the need for housing and various services to support the growing population.

Read next: Where are the most mortgage-free homeowners in Canada?

While major centres like Toronto and Vancouver have cooled, surrounding affordable areas remained hot, especially for industrial. The energy/mining boom is also driving activity in the Prairies and Atlantic Canada.

"Cautious optimism is growing with the likely end to quantitative tightening expected in the latter half of the year," Alexander said. "Confidence levels are expected to rise, sparking renewed activity in the market."

Canada's housing needs and population growth are expected to further fuel commercial real estate development across most sectors, according to RE/MAX.

Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.