Retail properties are demonstrating the most resilience as Canada’s commercial real estate market braces for uncertainty throughout the rest of 2025, according to a new report from JLL.

Retail’s continued resilience is expected to make it a standout performer amid broader market fluctuations.

“There’s been a strong [customer] return to physical retail stores since COVID,” said Scott Figler, JLL’s head of Canadian research and the report’s lead author, told Connect.

“We’ve seen e-commerce penetration normalized over the last two years. After everyone was shopping online in 2021, 2022 a lot more people are are now shopping back in stores, but then also retail supply, if you look at it on a short-term basis, has been very low.

“So as the population grows, the retailers’ demand for retail space has grown, but the supply of retail spaces has been pretty flat. So that’s putting upward pressure on rents, and that’s why you see in that report, from an ownership standpoint, retail has been the best-performing asset class in 2024.”

Along with solid rental-growth, retail owners saw record-breaking mall sales in 2024. In contrast, other asset classes, including industrial, office, and multi-family, faced challenges that tempered overall investment activity.

But the overall market still displayed underlying strength, said Figler.

“There’s a lot of macroeconomic geopolitical balls in the air right now but the market fundamentals have been strong to close 2024,” he said.

In the fourth quarter of 2024, industrial demand and absorption were “really good” and the office-leasing sector recorded its best quarter in several years, he added.

“Things are moving, there’s momentum but it’s just the policy uncertainty [that could stop it],” he added, referring mainly to U.S. tariffs and Canadian countertariffs.

JLL reported that while industrial markets are stabilizing after years of low vacancies, rental growth is slowing, and land sales have declined 18% year-over-year. The office sector remains under pressure due to an oversupply of underperforming properties. Meanwhile, the multi-family sector saw a surge in rental-apartment completions, easing affordability concerns but also leading to rising vacancy rates.

Canada’s broader economic outlook presents mixed signals, according to JLL. While GDP growth slowed to 1.3% in 2024, the economy avoided a deep recession. The company noted that the International Monetary Fund forecasts a 2.4% GDP growth rate for 2025, though U.S. tariffs on steel and aluminum could dampen these projections. Canada’s labour market has shown signs of recovery, with unemployment falling to 6.6% in both January and February from 6.9% in November.

On the capital markets front, commercial real estate investment volumes reached $48.7 billion in 2024, marking a 14% annual decline. Larger deals worth more than $100 million accounted for less than 20% of total activity, a decade low, as private investors and owner-occupiers led transactions. Institutional investors remained largely sidelined.

Eastern Canadian counterparts generated higher capital flows in 2024, but Western Canadian markets are outperforming the competition on a relative basis.

Toronto led the country with about $15 billion, or 30% of total national volume in 2024, while Montreal followed with $8.4 billion. Calgary investment reached $3.9 billion, surpassing 2019-2023 average annual sales volume by 13%. Vancouver (about $7 billion) posted a 5% improvement on its five-year average, and Edmonton ($2.1 billion) up 9.7% on the same basis.

Key trends for 2025 include a growing shift toward owner-occupied assets, diversification in lender strategies, and heightened focus on sustainability credentials in financing decisions.

Fellow JLL researchers Chad Piche, Heli Brecailo and Will Schneider also contributed to the report.

Photo: JLL