Debt remains available, but lenders favour stronger borrowers
Canada's commercial real estate market is recovering, but a shortage of borrower equity could complicate refinancing in 2027 despite readily available debt financing, according to the Emerging Trends in Real Estate 2027 report from PwC Canada and the Urban Land Institute (ULI).
Commercial real estate investment reached $16.2 billion in the second quarter of 2026, its highest level since early 2022, according to CBRE. Canadian investors' willingness to buy property has also reached its strongest level in 15 years.
Despite the recovery, lenders remain selective, favouring established borrowers and properties with stable income. With a wave of commercial mortgages due for refinancing in 2027, securing enough equity could be a bigger challenge for some borrowers than obtaining debt.
The report points to growing use of preferred equity and mezzanine debt to fill the gap between senior loans and borrowers' available capital. According to Lee-Anne Kovacs, national real estate leader at PwC Canada, these financing options could help property owners refinance existing debt or raise additional funds.
"Optimism is returning to Canadian real estate, but it must be earned. We are seeing clearer signs that the market is turning a corner, with opportunities emerging across asset classes and regions. The organizations best positioned for the next cycle will be those that remain selective, move with conviction and address the constraints standing between improving conditions and real opportunity,” Kovacs said.
The uneven recovery is particularly clear in Toronto, where the struggling condominium market contrasts with stronger demand for other commercial properties.
Greater Toronto Area pre-construction condominium sales fell 80% year over year in the second quarter of 2026, according to Urbanation, while completed, unsold developer inventory reached a record 5,001 units.
Meanwhile, CBRE reported downtown Toronto Class AAA office vacancy of just 2.6%, while Colliers placed the city's industrial vacancy rate at 2.2%, the lowest in Canada. These differences show why property type and rental income remain important considerations in financing decisions, even within the same city.
"The GTA's real estate market is moving at different speeds. Industrial and premium office show signs of recovery, while condominiums remain challenged. Purpose-built rental is supporting construction despite difficult project economics. Long-term investment opportunities remain, but realizing them requires patient capital and sustained housing delivery to prevent today's slowdown from creating future supply gaps and renewed pressure on housing affordability,” said Richard Joy, executive director at Urban Land Institute, Toronto.
Elsewhere, Calgary and Edmonton are attracting investor interest, supported by stronger economic growth forecasts. Calgary ranks first among Canadian markets to watch for 2027, with real GDP growth projected at 3.4%, according to Signal49. Edmonton is expected to grow by 3.0%, with continued interest in smaller industrial properties.
Across Canada, the report identifies senior housing, retail and industrial properties as the leading investment opportunities for 2027, although each comes with different risks.
Demand for senior housing is growing with Canada's ageing population. Cushman & Wakefield estimates that nearly 200,000 additional rental units will be needed over the next decade, although staffing and operating requirements add complexity.
Retail properties are benefiting from limited new supply and renewed tenant demand. Industrial investors, meanwhile, favour small- and mid-bay facilities, while larger properties face greater risk when they depend on a single major tenant.
