As 2025 approaches, Canadian real estate investors are seeing a clarity nearly two years in the making. Interest rates have charted a downward trajectory through the year, inflation appears under control, and economic conditions are starting to normalize. By all accounts, the improved investment conditions have set the table for a resurgence in Canada’s real estate markets. As these challenges progress toward resolution, private Canadian multifamily investments continue to be a source of stability and growth for many investors driven by several trends.

Improved financing conditions to spur real estate growth

The reprieve provided by the Bank of Canada’s ongoing rate-easing cycle is expected to carry into 2025, driving growth in most categories of real estate. With Canada’s per-capita economic measures continuing to fall, the depth of interest rate cuts, rather than their direction, will be the key factor influencing investor confidence.

Following a quiet year for multifamily transactions, improved clarity on interest rates and financing costs have sparked early signs of renewed dealmaking. As conditions continue to improve, firms can benefit from easier access to capital for transactions and lower costs on new or refinanced debt. An increase in the demand for multifamily properties could lead to higher price and cap rate compression as firms exercise their increased access to capital. This positive news can give yield-focused investors more confidence to shift from fixed-income products, which have been negatively impacted by declining interest rates, to the multifamily sector, where yields have traditionally been stable.

On the residential side, lower mortgage costs are forecasted to reignite residential housing markets after the typically slow winter season. Coupled with policy shifts, like 30-year mortgage amortizations on new builds and for first-time homebuyers, rates are expected to boost affordability which may nonetheless be impacted negatively by Canada’s entrenched supply-demand imbalance over the long term. Canadians continue to shift toward rentals and condo-style living as more affordable alternatives to single-family homes, particularly in urban areas.

Established real estate firms to retain advantages

The low transaction volumes of recent years proved beneficial for well-capitalized real estate companies which were able to leverage the decreased competition to make acquisitions at more favourable prices. Their strong balance sheet, access to credit, and better banking relations will continue to be a differentiator supporting growth and liquidity in the coming year as smaller, less-established firms may face continued financial challenges and slower growth expectations.

According to the Emerging Trends in Canadian Real Estate 2025 report by PwC and the Urban Land Institute, this disjunct creates an opportunity for larger players to provide capital to smaller firms and projects facing financing issues. Indeed, survey respondents anticipate a year defined by established players ranging from private equity to foreign investors entering the market.

A stronger financial footing also allows established companies to strategically direct available capital toward property improvements and enhancing residents’ living experiences, which contributes to property value appreciation when market conditions make acquisitions less accessible and increases their marketability over the long term. While market-driven value declines from 2022 to 2024 have moderated the positive impact of these upgrades, declining interest rates and cap rate compression should allow the gains to have a stronger effect in 2025.

Shifting resident and buyer preferences

Real estate developers are adapting to shifting resident preferences to remain competitive. Across purpose-built rental and condo markets, there is a growing demand for larger, more functional units that prioritize livability, moving away from investor-driven designs focused on volume and cost. By prioritizing thoughtful layouts, community-focused spaces, and convenience, developers can better serve this market.

As always, location plays a crucial role in this shift. Secondary cities like Hamilton, Ottawa, London, Kitchener, and Waterloo are recently gaining traction for their balance of quality of life and affordability. Unlike bedroom communities, these cities offer opportunities to live, work, and play without long commutes, making them attractive to a wide range of residents. Boutique developments in established neighbourhoods offer a desirable alternative to crowded towers in overly dense, underserved development corridors.

Vibrant urban cores remain desirable for longstanding reasons, as walkability, access to transit, and proximity to work and play continue to draw people to city centres. Additionally, the growing inaccessibility of car ownership and reluctance for commuting among urban residents underscores the importance of thoughtful, well-connected developments. As Christopher Wein, COO of Equiton Developments noted in a recent BNN interview, aligning with these trends can help developers deliver lasting value and position themselves for sustained growth.

Supply-demand gap continues to reinforce multifamily performance

Policy shifts and homebuilding efforts in 2024 have done little to change the trajectory of Canada’s housing shortage. Population growth coupled with a severe undersupply of new housing, and rental apartments in particular, has supported exceptionally tight markets. Canada’s revised immigration targets plan to welcome 1.14M immigrants over the next three years, still well above pre-pandemic levels.

Meanwhile, major regions like the Greater Toronto and Hamilton Area, where most new immigrants to Canada tend to settle and rent, have added a record number of purpose-built and condominium apartments. The impact of the new supply was minimal on rental occupancy rates, which reached approximately 98% nationally at the end of Q3’24.

Furthermore, construction remains a fraction of the scale necessary to effectively improve affordability. New housing starts are anticipated to stay low as the year unfolds, with the knock-on effects of high interest rates having taken their toll on pre-sales. As fewer starts lead to fewer completions, upward pressure on rents will remain strong throughout 2025 and into the coming years.

Mitigating uncertainties through real estate investments

Questions around the investment climate appear clearer, prompting growth-oriented investors to prepare for a resurgence in real estate. At the same time, those prioritizing wealth preservation may view aspects of the economic environment differently. These investors are increasingly turning toward private Canadian multifamily real estate, attracted by its diversification potential and stability.

Although Canadian inflation measures have fallen within the Bank of Canada’s target range in the final months of 2024, some inconsistencies can suggest inflationary pressures might remain unresolved. Private real estate investments offer an effective hedge against both inflation and a weakening Canadian dollar, making them an appealing choice in this uncertain climate.

Meanwhile, as U.S. President Elect Donald Trump prepares to take office, proposed tariffs have the potential to disrupt the Canadian economy and inject volatility into North American equity markets, which have reached speculative highs. In contrast, private real estate — with its strong fundamentals and market tailwinds — is insulated from equities market fluctuations and helps mitigate foreign political risks.

Trends driving multifamily’s bright future

With the above in mind, 2025 will mark a significant departure from the investment climate of recent years. While multifamily’s growth has long charted an upward trajectory over the long term, emerging trends suggest the pace of growth could accelerate, driven by renewed investor confidence and shifting economic conditions.

IMPORTANT INFORMATION: This communication is for information purposes only and is not, and under no circumstances is to be construed as, an invitation to make an investment in Equiton Residential Income Fund Trust (the “Fund”) or with Equiton Capital Inc. Recipients of this document who are considering investing in the Fund are reminded that any such purchase must not be made on the basis of the information contained in this document but are referred to the Confidential Offering Memorandum which may be obtained upon request.