Commercial investors weigh a steady policy rate against rising office market activity
The Bank of Canada’s latest decision to keep its policy rate unchanged at 2.25% leaves commercial real estate players reading between the lines on how long borrowing costs would stay elevated and what that would mean for investment volumes across asset classes.
While the hold extends an already prolonged high-rate environment, activity in parts of the market continues to move.
Market participants view the hold as expected. Many lenders and brokers already priced in a “higher for longer” scenario, focusing instead on debt serviceability, refinancing timelines, and how much further cap rates might need to adjust to clear deals.
The decision reinforces that environment rather than reset it, prompting investors to stay selective and underwrite more conservative rent and exit assumptions.
Office activity stands out despite uncertainty
Despite the pause, the office sector show signs of life in both leasing and investment, according to Avison Young.
Mark Fieder, principal and president at Avison Young Canada, said it is no surprise that the Bank of Canada continues to hold the overnight rate, and that his team would have preferred a cut to further stimulate commercial real estate investment activity.
He said they are keeping a close eye on the possibility of a rate increase later this year amid global economic uncertainty.
“Despite the uncertainty and paused rates, we note marked activity in the office sector in particular, in both investment and leasing,” Fieder said.
Wider commercial market stays in a holding pattern
Beyond offices, investors in industrial, multifamily and retail assets continud to work through an environment of tighter credit conditions and softer pricing expectations.
Many deals remain contingent on modest vendor discounts or more flexible structures rather than pure yield compression, reflecting lingering caution around rate timing and the broader economy.
Meanwhile, Canada’s commercial real estate market appears to pass an important milestone in the first quarter of 2026, with both office and industrial vacancy edging lower for the first time in years, according to new figures from Colliers.
The firm reported a national office vacancy rate of 13.6% and industrial vacancy of 3.5%, each down 100 basis points year over year – a shift that hints at a slowly healing market after the pandemic-era shock.
The retreat followed several years in which office floors emptied out and industrial space swung from scarcity to a mini‑glut. Avison Young’s 2026 Canadian Outlook already highlighted “clear signs of recovery across most asset classes” heading into 2026, even as lenders and borrowers remain wary of higher rates and refinancing risk.
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.
