Wait for Deeper Rate Cuts or Act Now?
The Bank of Canada's fourth consecutive rate cut, bringing the overnight rate to 3.75%, marks a significant shift in monetary policy that will reshape Quebec's commercial real estate landscape. While this 50-basis-point reduction signals confidence in controlled inflation, its impact on the commercial real estate sector requires careful analysis.
Transaction activity in the commercial real estate sector remains cautious despite the cumulative 125-basis-point reduction since June. Industry experts indicate that more substantial cuts may be necessary to significantly impact development. This suggests that while sentiment is improving, meaningful transaction volume recovery might not materialize until mid-2025.
However, the bid-ask spread is already beginning to narrow, indicating improving price discovery, though transaction volumes remain subdued. Investors with patient capital and strong balance sheets may find strategic acquisition opportunities as distressed assets emerge and sellers adjust price expectations.
The multifamily sector continues to demonstrate resilience, supported by Quebec's robust population growth and persistent housing shortage. Montreal's rental market has shown particular strength, with average asking rents increasing by 11.3% year-over-year to $2,019. Lower borrowing costs could accelerate investment in rental properties, especially in submarkets where affordability pressures are creating demand shift patterns. The real concern is placed in the construction sector which faces ongoing challenges despite lower financing costs. Quebec experienced a notable 17.3% decrease in multi-family building permits, reflecting broader industry concerns about construction costs and regulatory hurdles.?
As discussed in previous analysis, we expected federal tax changes, particularly the increase in the capital gains to introduce additional complexity to the investment landscape and this was confirmed this week. This change positions Canada 35th out of 38 OECD countries for capital gains taxation, potentially affecting investment flows into the commercial real estate sector. Investors need to carefully evaluate their exit strategies and holding periods in light of these tax implications.
Recent cut by the Bank of Canada, which forecast a 2.1% GDP growth for 2025, relies heavily on real estate sector contribution. Housing is expected to account for nearly a quarter of total growth. However, the recent announcement by the federal government of a lower immigration threshold could dampen that prospect by alleviating a portion of the housing demand in the year to come.?
As we move deeper in rate cut territory, the real estate market is transitioning from a period of uncertainty to one of strategic opportunity. While broad market activity may remain subdued in the near term, specific sectors and submarkets offer compelling investment cases. The multifamily sector, in particular, continues to demonstrate strong fundamentals supported by demographic trends and supply constraints.
At Votre équipe Immobilier, we're actively monitoring these market shifts and identifying opportunities for our clients. How are you positioning your portfolio to capitalize on the evolving market conditions? Connect with us to discuss your investment strategy and explore how these changes might impact your commercial real estate holdings.