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Canada  + Cross Border News  + Finance  | 
Bank of Canada Governor Tiff Macklem.

BoC’s Latest Cut Won’t Spell Immediate New Investment: CRE Leaders

The Bank of Canada’s latest interest-rate cut will not spark immediate new investment due to concerns about U.S. President Donald Trump’s threatened tariffs and current conditions, say commercial real estate industry leaders.

“Investors are adopting a wait-and-see strategy to contend with a fair amount of uncertainty in the market right now,” said Ray Wong, a vice-president at Toronto-based Altus Group.

The widely expected rate cut saw the BoC lower its benchmark interest rate by 25 basis points to 3% on Wednesday.

“While this is welcome news for commercial real estate investors looking to step off the sidelines and into the market, we continue to actively monitor economic conditions and acknowledge a degree of risk and uncertainty ahead due to the possibility of tariffs imposed on Canadian goods by the U.S.” said Mark Fieder, president of Avison Young’s Canadian business.

The central bank also announced an end to its quantitative-tightening program, signalling a shift in policy as it begins to stabilize and modestly expand its balance sheet.

“Continued strained development economics are keeping some developers on the sidelines, and there isn’t much in this announcement to suggest that this will turn around very quickly,” said Peter Norman, another Altus Group vice-president. “Expect only tepid activity in terms of new project launches at least for the first half of this year.”

At a news conference where he announced the cut, BoC Governor Tiff Macklem stressed that monetary policy can help support the economy, but it cannot shield Canada from the potential economic consequences of a protracted trade conflict with the U.S.

“The reality is the economy is going to work less efficiently,” Macklem told reporters Canada’s going to produce less. It’s going to earn less. Monetary policy can’t change that.”

Trump has threatened to impose a 25% tariffs on imports of Canadian goods into the U.S. as early as Saturday after holding off on doing so during his first day in office.

Desjardins economist Royce Mendes believes the cut was warranted.

“There are enough reasons to cut interest rates even without the threat of tariffs,” Mendes told the Toronto Star, citing a softer labour market and slowing population growth as indicators of a weaker economic outlook. “I think that there is reason to believe that Donald Trump is going to make good on the threat of tariffs to Canada, and getting a little bit ahead of the game by lowering interest rates (by) a quarter point is helpful because you’re starting from a position that is less restrictive on the economy.”

The BoC’s outlook remains cautious. Inflation remains near the 2% target, but weaker business investment and uncertainty around potential tariffs weigh on the growth forecast. GDP growth is expected to reach 1.8% in both 2025 and 2026, following a slower pace of 1.3% in 2024.

“If not for the tariff threat, we would be talking about the bank moving to the sidelines today,” Douglas Porter, the Bank of Montreal’s chief economist, wrote in a note to clients, according to multiple reports.

Altus VP Norman said a 25% tariff would be “extremely challenging” to Canada’s economy.

“In that case, we can expect a lengthy interruption to the Canadian commercial real estate market and to the residential development sector,” he said. “Other outcomes could be lower or more focused tariffs, and the subsequent impact would be commensurately lower, too.”

Despite feeling apprehensive, CRE leaders still expect more investors to get off the sidelines in 2025.

“We remain optimistic about a longer-term bull run going into the last half of the year, stimulating appetite and capital allocation in such asset classes as industrial and multi-family,” said Avison Young’s Fieder.

Photo: Shutterstock

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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.

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