Capital Markets

Trends to Watch

• Greater activity across all capital sources to drive higher volumes

  Investment volumes in 2025 had recorded modest, organic growth each quarter over 2024 levels and the purchaser profile of investment activity also started to broaden. Greater participation from all sources of capital, particularly institutional groups, will help lift annual volumes higher in 2026.

• Sentiment around office investment has rebounded

  Investor sentiment around office has greatly improved, bolstered by momentum in the return-to-office and robust debt liquidity for high quality assets.

• Cap rates have likely peaked and set to hold steady overall in 2026

  Overall national average cap rates are expected to hold steady or compress slightly in 2026, supported by modest economic growth, flat Canada 10-year bond yields and spreads currently within long-term average ranges.

Greater activity across all capital sources to drive higher volumes

The Canadian commercial real estate investment market proved resilient in 2025 with national sales volumes on track total approximately $47 billion, a level in line with volumes seen in the runup to the pandemic. Despite a trade war and an incredibly uncertain business environment over most of the year, investment volumes in each quarter recorded modest, organic growth over 2024 levels. Notably, the purchaser profile of investment activity also started to broaden in 2025.

Greater participation from all sources of capital in 2026 should shift the overall makeup of buyers in the market closer toward its more balanced historical levels. In particular, the return of institutional groups will be a major driver of momentum given their substantial capital and buying power. Global capital is also increasingly looking to Canada as a market of relative stability amid rising geopolitical tensions. Meanwhile, a significant rebound in real estate debt markets has supported greater liquidity across all asset classes, including the office sector.

Altogether, the real estate investment market is primed for a stronger 2026. Market volumes are forecast to rise by over 8% and when coupled with major pending M&A and portfolio deals, this could bring total activity to around $56 billion for the year.

Since the pandemic, office investment activity has slowed as uncertainty over the future of the workplace and challenging financing conditions weighed on the market. In the 10-year period leading up to the pandemic, office investment typically accounted for 23% of total annual volumes. This has since fallen to less than half, averaging 11% of volumes over the last three years.

Investor sentiment around office has now improved substantially, bolstered by momentum in return-to-office mandates for public and private sector workers. Alongside a receptive debt market that has opened up to the asset class, albeit mostly for high quality Class A product, office investment volumes are set to rebound back to levels more consistent with its historical share of total activity. In fact, there has already been a couple notable office transactions in late 2025 that highlight the return of investor conviction in the asset class.

Returns for office investment also appear to have reached its inflection point and further strengthens investor confidence. This has been seen in the shift back to positive, albeit very modest, total returns as reported in the MSCI/REALPAC Canada Property and Property Fund Indices.

For real estate cap rates, overall national average yields are expected to largely hold steady or compress slightly in 2026. This is supported by a modest economic growth outlook, a Canada 10-year bond yield forecast to remain flat and cap rate spreads currently within long-term average ranges.

While cap rates have likely peaked generally across most asset classes, dynamics will vary by sector and location. High quality and resilient assets could see greater yield compression in 2026 such as in downtown trophy office, food-anchored retail and small bay industrial.