CRE as a catalyst: Jobs, investment, and policy in a shifting Canadian economy

At this year’s NAIOP CRE Converge Conference, Peter Norman, VP and Economic Strategist, had the opportunity to share new insights on the economic impact of Canada’s commercial real estate (CRE) sector. The presentation drew on fresh research prepared with the NAIOP Research Foundation and comes at a critical moment; when macroeconomic uncertainty, demographic shifts, and policy decisions are reshaping the environment in which CRE operates.

The theme was clear: commercial real estate is not just about buildings, it’s about jobs, investment, and the vitality of communities. But to maximize its power, we must recognize both its contributions and its current challenges.

Demographics: A dark horse in the economy

Historically, demographics have consistently influenced housing and real estate, albeit in slow, predictable ways. Today, this is no longer the case. Canada’s population growth surged in the immediate post-pandemic years, topping one million newcomers annually as the government expanded immigration and temporary permits. But in the past year, growth has slowed sharply to about half that pace.

Looking ahead, projected federal policy changes to work and study permits are expected to significantly slow population growth, bringing it close to zero over the next three years and maintaining a moderate pace thereafter. Such a shift brings real consequences. Fewer “warm bodies” mean fewer workers to fill jobs, less demand for housing, weaker consumer spending, and slower momentum across the CRE spectrum, affecting everything from retail traffic to industrial logistics and office employment.

Population growth is ultimately shaped by policy decisions, and the timing and scale of recent reductions raise important questions. Demographics, which are usually a stable backdrop to economic trends, have become a more active force influencing today’s economy. From an industry perspective we’d like policy makers to reconsider whether such shifts are necessary, particularly during a period of economic uncertainty.

Uncertainty: The costly haze of tariffs and policy shifts

Another disruptor is trade policy. Even before tariffs formally took effect in early 2025, the rhetoric of protectionism unsettled Canadian businesses. Companies stockpiled inventories, investments slowed, and forecasts swung sharply downward.

The data shows Canada’s economy contracted in the second quarter, erasing gains from the start of the year. Equity markets remain volatile, new home sales have fallen, and consumer sentiment has been shaken. While retail spending has held up comparatively well, the broader climate is one of caution. Investors and developers are less inclined to make bold moves amid a macroeconomic environment shrouded in a haze of uncertainty.

Labour markets: Weakening foundations

Labour data points to ongoing strain. After strong gains in 2024, job growth has slowed dramatically. Recent reports showed outright losses, pushing unemployment higher. Youth employment is a particular concern: participation among 20- to 24-year-olds has dropped noticeably, raising questions about the long-term resilience of Canada’s labour force.

While older workers are remaining in jobs longer, the next generation is finding it harder to establish themselves. For an economy that relies on talent and growth, this imbalance is important, and CRE may feel the ripple effects through weaker office demand, delayed household formation, and softer retail activity.

Commercial real estate’s economic footprint

Against this backdrop, it’s worth restating just how central CRE is to Canada’s economy. Our research shows the sector supports more than one million jobs nationwide. This impact is comparable to the oil and gas industry, which plays a prominent role in shaping federal and provincial policy.

Those jobs come through three channels:

• Direct impacts: Employment in construction, property management, leasing, brokerage, and operations.

• Indirect impacts: Upstream industries, from architects to steel producers, catering firms to accountants.

• Induced impacts: Local spending generated when workers in CRE and its supply chains spend their wages in their communities.

Together, CRE generates nearly $200 billion in GDP, about seven percent of Canada’s economy. This isn’t a passive sector; it’s a powerful catalyst for economic activity.

Stress points: Investment and transactions

The industry is facing pressure. Transaction volumes have fallen sharply since 2021, with office deals down by half and most other asset classes also slowing. Elevated cap rates and high borrowing costs are squeezing returns, while uncertainty around growth has kept investors cautious.

The result is a sector that remains vital but is currently constrained. Its potential is limited by policy and financial headwinds.

Office: The challenge of functional obsolescence

The challenges are most acute in the office sector, where structural shifts in demand are colliding with long-standing supply. Canada has roughly 800 million square feet of office space, with about 100 million sitting vacant. The challenge is not only remote work - though hybrid models have permanently shifted demand - but also the space efficiency revolution. Workplaces today are designed with roughly half the space per employee compared to pre-pandemic norms.

Even with about 500,000 net new office jobs created across Canada in recent years, absorption has barely budged. Much of the vacant space is functionally obsolete: older Policy will play a key role. Waiting for “back to the office” orders won’t solve the problem. A more flexible regulatory environment could help accelerate conversions and redevelopments, turning obsolete towers into housing or alternative uses, clearing the way for investment in new, high-quality office projects that better reflect modern demand.

Multifamily, retail, and industrial: Mixed signals

Other asset classes present a more nuanced picture.

• Multifamily: Institutional rental construction has grown, spurred by tax policy changes like the 2023 GST/HST rebate. Still, financing remains challenging, and slower growth in young-adult households could test demand in the medium term.

• Retail: Consumer spending has been surprisingly resilient, and retail investment has held steady, though slower population growth could create overbuilding risks in the near term.

• Industrial: Logistics, data centres, and cold storage continue to attract capital, with investment levels rising steadily since 2021. Niche demand, coupled with replacement of older stock, keeps this sector a relative bright spot.

A call to action

The takeaway from our research is twofold. First, commercial real estate is a pillar of Canada’s economy, supporting jobs, driving investment, and helping shape communities alongside the country’s largest industries. Second, the sector is navigating a period of significant strain, and thoughtful policy choices will play an important role in determining whether it gains momentum or remains constrained.

More flexible planning rules, faster approval processes, and fiscal policies that encourage both new investment and adaptive reuse would help unlock opportunity. Reassessing recent shifts in short-term population policy may also be worthwhile, given their broad effects on CRE and related sectors.

In an era of uncertainty, one thing is certain: a thriving commercial real estate sector is essential to a thriving Canada.

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