Canada CRE News In Your Inbox.

Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.

Sub Markets

Property Sectors

Topics

Canada  + Finance  | 
Photo of Bank of Canada Governor Tiff Macklem

BoC Makes Oversized 50-BPS Interest- Rate Cut

The Bank of Canada announced an oversized interest-rate cut on Wednesday.

The central bank lowered overnight lending rate by 50 basis points to 3.75%, marking the fourth consecutive reduction since June. In each of the previous cuts, the rate declined by 25 basis points.

Commercial real estate industry leaders were generally encouraged by the move, but Altus Group analysts said it will not kick-start investment.

“Even with a cut of this magnitude, CRE transactions will likely remain on the sidelines until there is confidence that we have – more or less – returned to balanced monetary conditions,” said Altus Group Vice-President Peter Norman.

“As I’ve said in the past, the point of rate cuts is to stimulate the economy, but they typically do so with fairly long lags. Investors want a relatively stable rate environment before they start transacting again, so I would expect activity to pick up sometime in mid-2025.

“Developers have told us before that we will need to see cuts of 200 to 300 bps to really move the needles on pro formas. We are now 125 bps into a cutting cycle so, once again, I think we can expect a surge in confidence some time in 2025.”

The BoC’s 50-bps cut matched a reduction that the U.S. Federal Reserve made a few weeks ago after being considerably slower than other countries to introduce cuts. Canadian investors have indicated that they intend to complete more transactions in the next six months.

“When we consider the decisions put forth by the Federal Reserve and the Bank of Canada, we are reminded that they do everything for a reason,” said Ray Wong, a vice-president at Altus Group.

“When a large cut, like this one, is announced, it demonstrates a concern that consumers are running out of gas and that the BoC is hoping to ignite the markets before tipping into a recession.

“We are seeing increased activity across the Canadian commercial real estate market, but not in the tangible sense. There is an uptick in interest, and there is more stability in the bid-ask expectation between buyers and sellers. Right now, it’s still costly to borrow money, but with each consecutive cut, investor sentiment improves in anticipation of future transactions.”

The cut was widely expected but came after most economists and analysts had originally indicated that they anticipated another 25-bps cut only to change their views. A 50-bps cut is considered unusual unless it comes during a recession or other severe economic times, such as the COVID-19 pandemic or the 2008-09 global financial crisis.

Mark Fieder, president of Avison Young’s Canadian business, was highly encouraged by Wednesday’s reduction.

“The announcement from the Bank of Canada is most welcome news to the commercial real estate industry and will have a positive impact on investor sentiment, fuelling appetite and capital allocation,” he said.

“With this move, I expect investments to become more attractive – opening the door for more entry from institutional investors in particular. With commercial real estate return metrics improving compared to other asset classes, we’ll keep a watchful eye on performance now that we are shifting into a new interest rate regime that is better favouring investment opportunities.”

Altus attributed the large cut to the BoC’s shifting concern to weakening labour data from inflation, which dropped to 1.6% in September. That marked the first time in three years that inflation fell below the bank’s 2% target.

“We took a bigger step today because inflation is now back to the 2% target and we want to keep it close to the target,” BoC Governor Tiff Macklem told reporters during a press conference.

“We need to stick the landing.”

But BoC officials also want to ensure that inflation does not stay below 2% and stall economic growth.

“We are now equally concerned about inflation coming in higher and lower than expected,” he said.

Still, Macklem said more policy-rate cuts are likely in the coming months.

“The timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook,” he said.

Photo: Bank of Canada Governor Tiff Macklem

Connect

Inside The Story

Tiff MacklemBank of Canada

About Monte Stewart

Monte Stewart serves as Content Director - Canada for Connect Commercial Real Estate. Based in Vancouver, British Columbia, Monte provides daily news coverage of major Canadian commercial real estate markets, including Vancouver, Toronto, Montreal and Calgary. He has written about the real estate sector for various media outlets and Avison Young since the early 2000s. In addition, he has covered sports, general news and business for several leading wire services and publications, including The Canadian Press, The Associated Press, The Calgary Herald, The Globe and Mail, Research Money, The Daily Oil Bulletin, Natural Gas World and The Toronto Star. Monte is active in his community as a youth basketball coach and raises funds for such charitable causes as Movember.

New call-to-action