Canadian commercial real estate (CRE) investors are increasingly looking to transact in the near term, reflecting a growing sense of market optimism despite lingering economic concerns, according to a new Altus report.

The company’s fourth-quarter 2024 industry conditions and sentiment survey found that 77% of Canadian respondents intend to transact within the next six months, up from 67% a year earlier.

This finding marks a notable shift in sentiment, suggesting that investors are gradually moving beyond portfolio management toward capital deployment following a series of Bank of Canada interest-rate reductions following a prolonged period of hikes and holds.

The survey gathered insights from 390 CRE professionals across 129 firms in Canada and the U.S.

“The fourth-quarter survey results tracked closely with the prevailing capital-market sentiment throughout most of 2024,” said Omar Eltorai, director of research at Altus. “There’s a clear sense of growing optimism, driven by lower interest rates and a narrowing bid-ask gap between buyers and sellers.

“However, it will take time for this optimism to translate into market activity. The CRE market is in the process of thawing; we’ll gain a clearer picture of how quickly this recovery will progress throughout the year.”

While investors are increasingly prepared to act, they remain wary of broader economic conditions. Slightly more than half (51%) of Canadian respondents believe a recession is “somewhat likely” or “very likely” within the next six months, up from 46% in the previous quarter. However, the majority expect any downturn to be shallow and short-lived, in line with previous survey results.

Despite having increased transaction intentions, many Canadian investors still view CRE asset prices as “overpriced,” although sentiment has improved for certain property types. The multi-family and industrial sectors remain the most attractive asset classes, with retail and hospitality also seeing increased optimism. Meanwhile, office properties continue to struggle with weak investor confidence.

Canadian investors expect a challenging operating environment in the coming year, with 63% describing conditions as “somewhat challenging.” However, this figure represents a slight improvement from previous quarters. Capital-expenditure expectations remain relatively stable, with 57% of respondents anticipating no significant changes compared to the previous year.

Compared to their U.S. counterparts, Canadian investors remain more cautious, particularly regarding asset pricing and economic risks. Altus found that 90% of U.S. investors intend to transact within six months, compared to 77% in Canada.

Additionally, U.S. investors were more likely to describe asset pricing as “about right,” whereas Canadian investors still see much of the market as overvalued. Canadian investors consider industrial, single-family rental housing, office and development land to be “overpriced” but view multi-family, retail and hospitality as being “fairly priced.”

Despite these differences, the overall trajectory of investor sentiment in both countries suggests improving confidence, driven by easing financial conditions and a clearer economic outlook, according to Altus.

Photo: Shutterstock