The sluggish Canadian commercial real estate market is getting ready for better times, says a leading analyst.

Ray Wong, vice-president of data solutions and client delivery for market intelligence firm Altus Group, made the comments in an interview in Toronto following Connect’s Canada Kick-off event this week.

“I think the road’s going to be bumpy, or sluggish, for the remainder of this year,” said Wong. “But I think it’s gearing us up for a better, and hopefully no false starts going into, 2025. Especially with what’s happening with with the potential decreases in the interest rates.”

Wong was referring to the fact that the Bank of Canada cut its key overnight interest rate by 25 basis points in early June, and the central bank is expected to make more reductions before the end of 2024.

“And, I think what’s happening with inflation will cause people to not go overboard, but look at being a little bit more optimistic on spending compared to what we’ve gone through the last 18 months,” he said.

Many investors kept their capital on the sideline during times of high inflation. But more properties are expected to change hands now that inflation has moved closer to the BoC’s target rate of 2%.

Wong was among the speakers at Connect’s first conference in Canada, which was held at Hines’ CIBC Square. He “absolutely” concurred with Kingsett Capital CEO Rob Kumer’s prediction that private companies will be the most active buyers for the foreseeable future and institutional investors will be the primary sellers.

“The situation with private investors is that they’re willing to take a little bit more risk,” said Wong. “There are some people that are running away from problems, whereas they look at opportunities and listings as potential growth. I think they’re a little bit more open to having that risk-return benefit in the marketplace, especially now with the market where it is. And, with a little less activity, there are opportunities.”

During a presentation at the conference, Wong called the BofC’s interest-rate cut “a nice start.” But, he added, the market will not see significant downward movement in interest rates until next year, when two or three more 25-bps cuts are expected to occur.

Earlier this year, the market’s anticipation that cuts would happen sooner and faster led to a “false start” on widespread investment.

“So, it [was] another delay in the marketplace,” said Wong. “As well, [the recent cut] doesn’t solve the problem [of high interest rates.] People with mortgages that are coming up for renewal are going from one-half [per cent] to about 7%.

“So, [the high interest-rate environment] remains to be a challenge as to whether they can hang on and whether or not we will face any other uncertainty or change over the next six to nine months into 2025.”

Wong noted that, nationally, investment declines are smaller than they were in 2023. But he expects to see upward investment momentum increase as investors get “their ducks in a row” and put strategies in place in anticipation of further interest-rate cuts.