A leading commercial real estate analyst expects investment activity to pick up and more deals to be completed by year-end 2024 and in 2025 now that investors are showing stronger appetite for transactions.

“We’re starting to see increased activity,” Ray Wong, a vice-president with Toronto-based Altus Group told Connect Canada CRE in an interview. “Activity and transactions are different. [Investors] are starting to look at the properties that are available.

“They’re trying to look at their return expectations and make adjustments on what what properties and what sectors that they’re interested in.”

It will take time for the activity to turn into transactions, but he expects more deals to get done in coming weeks and months.

Wong made the comments in response to recently completed Altus research that shows more Canadian investors are preparing to bring their capital off the sidelines.

Within the next six months, 75% of investors surveyed intend to buy or sell properties across the country. That rate is up 10% from the second quarter of 2024 and represents the highest level in the past year.

Wong said the bid-ask gap between vendors and buyers is starting to stabilize. A wide gap has been viewed as a major obstacle to deal completions, even after three consecutive Bank of Canada interest-rate cuts.

Wong said buyers and sellers now have expectations as to what it will take price-wise to acquire and divest assets. He expects to see more completions once results come in for the recently completed third quarter and fourth quarter now underway.

Further expectations of interest-rate drops and “a little bit more stabilization” should lead to more deals in 2025, he added. Altus expects first-quarter 2025 transactions to exceed the number of deals completed in the first quarter of 2025.

But it’s hard to say how much higher the first-quarter 2025 investment volume will be, said Wong. Although the Altus sentiment survey shows investors are more positive, they’re “a little bit cautious at the same time.”

Investors do not view industrial and multi-family assets as highly as they did in the second quarter. According to the Altus research, the number of people who view industrial as the best-forming asset class dropped 15%. Meanwhile, investors who rate multi-family the highest declined 10%.

But Wong isn’t worried about potentially significant investment declines in industrial and multi-family transactions.

“I don’t think there’s going to be less [investor] interest:” he said. “I think there’s going to be continued interest, and both those sectors are very strong this year. I think that will continue based on the type of returns and stability those assets bring to the market.”

Wong said investors’ revised views are due to the fact that industrial and multi-family yields and market capitalization rates have remained low.

“But I think there’s always interest in industrial and multi-res,” he said.

Wong expects investors to show stronger interest in data centres and self-storage, while renewing their appetite for retail.

“Any type of mixed-use or redevelopment opportunity, I think that works in that [retail] sector,” said Wong. “So, I think [retail assets are] still in demand.”

Other asset types will get more attention due to potentially higher cap rates and better pricing compared to core multi-residential and industrial properties, he added.

He expects Vancouver, Toronto, Montreal and, to a lesser degree, Calgary to account for most of the anticipated investment increase, because of their continuing strong economic and employment numbers.

“There is quite a bit of interest in those markets,” said Wong. “They have the diversity of assets, even for foreign buyers.”

He expects the anticipated Canadian transaction increase to be in line with a predicted U.S. uptick.

“I think there’s confidence both north and south of the border,” said Wong. “And, that largely is due to the [downward] direction of the interest rates as well as a little bit more stability in the markets.”

But investors will remain cautious amid uncertainty as to whether interest rates have dropped quickly enough to deal with “some of the affordability issues in the marketplace.”

Still, Wong expects the anticipated transaction increase to be continuous rather than temporary.

“As you know, the last couple of years, we had false starts going into the next year,”: said Wong. “I think 2025 will be a little bit more stable, as long as the interest rates still come down.”

Read Paul Bubny’s full story about Altus findings on U.S. investor sentiment.