The Bank of Canada's decision to keep its overnight rate at 2.25% prompted commercial real estate professionals to say they are already looking forward to when cuts can resume.
The central bank remains cautious, Governor Tiff Macklem indicated, as Canada navigates an economic landscape marked by slowing growth, persistent inflation pressures and global trade uncertainties, including tariff tensions that continue to weigh on exports and manufacturing. The move on Wednesday to hold rates steady comes within hours of the U.S. central bank saying it will cut its key interest rate by a quarter point to a range of 3.5% to 3.75%.
The Bank of Canada Governing Council noted in a statement Wednesday that “if inflation and economic activity evolve broadly in line with the October projection, the current policy rate is about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.” It added that “uncertainty remains elevated. If the outlook changes, we are prepared to respond.”
For property owners and developers, the hold means that financing costs remain higher than pre-pandemic norms, although they are well below the peak levels of recent years. Large-scale real estate projects continue to face tight margins and delayed timelines, as borrowing expenses limit aggressive expansion, leading real estate executives to look forward to when rates can fall further.
One real estate executive said that Canadians should get accustomed to fewer changes to the overnight rate, even though a cut would help the property industry.
“Lowering interest rates would be preferred for commercial real estate, as it would stimulate investment opportunities for those who have been on the sidelines and accelerate activity for investors already active in sectors like multifamily, industrial, and retail," Mark Fieder, principal and president of Avison Young Canada, said in a note to CoStar News. He anticipates the bank "will pause for the longer term barring any developments warranting a cut.”
Seeking lower rates
For developers, less-expensive financing typically spurs new construction and revitalizes stalled projects, particularly in high-density urban markets. Canderel, the real estate development firm, is urging the government to take action on rates.
“I feel we need to hear an indication from the Bank of Canada that they will use fiscal policy to stimulate the Canadian economy. Business across Canada is fragile, we still live with tariff uncertainty and subsequently investment in plants, machinery and people is on hold,” Chief Executive Brett Miller said in an email to CoStar News. “Furthermore, the housing sector, both new and secondary, is dead. We need lower interest rates to stimulate transactions, new development and renovations, all of which have big multiplier effects on economic stimulation.”
The hold comes after Canadians watched a rollercoaster ride of rate changes over the past three years. The Bank of Canada pushed its policy rate to a peak of 5% in response to rising inflation in 2022. It was the highest level in over two decades. That aggressive monetary tightening cooled housing markets and slowed consumer spending, but also added to the financial strain facing borrowers and developers.
Starting in mid-2024, the Bank of Canada launched five consecutive rate cuts as inflation eased and recession fears grew. Those reductions brought the overnight rate down to 2.25% by early 2025, sparking renewed optimism in real estate and capital markets. However, by late 2025, the Bank paused further cuts, citing core inflation and global uncertainty.
The higher rates of recent years have slowed Toronto’s once-booming preconstruction condo market, with sales hitting their lowest levels since the 2008 financial crisis. Tariff uncertainty has compounded the sales slowdown. A trade dispute with the United States has pushed some buyers to the sidelines, driving resale activity to cyclical lows in southern Ontario and softening prices in Vancouver, Montreal and other major markets.
However, few executives contacted by CoStar News view rate cuts as a straightforward solution to improve the Canadian real estate market.
“With economic data coming in stronger than expected and inflation pressures still present, the likelihood of additional rate cuts has diminished for now," Luke Simurda, director of research for Marcus & Millchap Canada, said in a note to CoStar News. “While commercial real estate investors would certainly welcome deeper easing, the lending environment has stabilized enough to give borrowers and lenders a clearer line of sight. That visibility is slowly thawing the market, improving underwriting conditions and shrinking the bid-ask gap between buyers and sellers."
Daniel Johanis, owner of Pekoe Mortgages, doesn’t believe multifamily condominiums in Greater Toronto will see any meaningful improvement: “As affordability improves a little and financing becomes more predictable, buyers needing space and stability might see value in suburban or family-oriented properties.”
The rates have also contributed to strain in rental markets. After years of relentless rent hikes driven by tight vacancy rates, asking rents have declined in Canada’s three largest cities — Toronto, Vancouver, and Montreal. Toronto’s average two-bedroom asking rent fell 3.9% year-over-year, Vancouver dropped 5.9%, and Montreal slipped 1%, according to Statistics Canada. The declines coincide with slower population growth and a surge of new rental completions, signaling a shift in landlord strategies after years of record pricing.