Vancouver commercial real estate market update – Q2 2025

In the first half of 2025, commercial investment in Vancouver experienced a significant contraction, down 33% year-over-year

Commercial real estate investment in the Vancouver market experienced a significant contraction during the first half of 2025. The total dollar volume transacted was $4.3 billion, representing a substantial 33% decrease compared to the corresponding period in the prior year, shown in Figure 1. This decline was primarily a consequence of the proposed increase in the capital gains inclusion rate, which had been scheduled for implementation on June 25, 2024. Additional factors contributing to the subdued activity included heightened investor uncertainty from geopolitical tensions, particularly concerning tariffs, and a static interest rate environment. Despite this downturn, long-term investor sentiment remained robust, with Vancouver consistently ranking as a top investment destination.

Figure 1 - Property transactions - All sectors by year

The impending increase in capital gains tax prompted investors to accelerate their transactions during the second quarter of 2024. Anticipating the implementation of the tax hike, investors aimed to conclude deals prior to the effective date to benefit from the existing, lower inclusion rate. This proactive approach resulted in a significant and anomalous surge in national investment volume during that period, despite otherwise subdued market conditions. Consequently, comparing the first half of 2025 to this artificially elevated prior-year period rendered the decline in transaction volume more pronounced than under normal circumstances, thereby creating a misleading comparison with the more active preceding period.

Several other notable factors contributed to the subdued investment activity. Heightened investor uncertainty played a substantial role, primarily driven by perceived economic decline within Canada. This uncertainty largely originated from geopolitical tensions with the United States, particularly concerning the unpredictable nature of tariffs proposed by the Trump administration. Given Vancouver's importance as a trade hub in Canada’s western corridor, this resulted in a disproportionate impact from trade-related risks. The region’s economy is deeply connected to international trade, especially as Canada’s largest and most diversified port, which handles a substantial portion of the country’s trade with the US, Asia and other markets. The imposition of new US tariffs on Canadian exports, especially on vital commodities such as steel, aluminum, and lumber, directly impacted the area’s economic stability. These policies increased the cost of imported goods, raised construction expenses for local developers, and disrupted established supply chains. This created a ripple effect, slowing housing development, stalling construction projects, and eroding business and consumer confidence. The tariffs also affected foreign investment patterns in Vancouver’s real estate market, altering the pool of potential buyers and contributing further to market caution.

In response to these economic headwinds, the Bank of Canada maintained interest rates at 2.75% throughout the first half of 2025. While a stable interest rate environment can offer some predictability, this static rate, coupled with a cautious economic outlook, did not stimulate borrowing and investment activities to the extent that lower rates might have. Furthermore, changes in immigration policies and stagnant employment growth collectively dampened the demand outlook for commercial real estate. The reduction in population inflows was anticipated to slow tenant demand growth across various sectors, while a sluggish labour market directly affected office space utilization and retail consumer spending.

These cumulative factors prompted investors to adopt a more strategic and cautious approach to capital deployment, emphasizing risk mitigation over expansion. This widespread hesitation contributed directly to a decline in transaction volumes. Concurrently, other investors strategically diversified their portfolios, reallocating capital toward more resilient asset classes perceived as less vulnerable to market fluctuations, such as food-anchored retail, purpose-built rentals, student housing, and retirement homes. This strategic shift resulted in a noticeable reduction in investment in more volatile sectors.

Despite this period of prudence, long-term investor sentiment toward the Vancouver market remained robust, reflecting a fundamental confidence in the city’s key drivers, including its resilient economy, strategic location, and limited supply. According to Altus Group’s latest Canadian Investment Trends Survey (ITS), Vancouver ranked as the second most preferred market among investors and consistently maintained a top-three ranking for seven consecutive quarters, underscoring its enduring appeal as a premier investment destination.

Retail

The first half of 2025 was a robust period for Vancouver’s retail investment sector, with a total transaction volume of nearly $852 million. This figure reflected a 17% increase compared to the same period in the previous year, highlighting the sector’s resilience in the face of broader economic headwinds. This commendable performance was largely attributed to sustained investor demand for prime retail locations within a notably tight market.

A key driver of this resilience was the strong performance and substantial investor enthusiasm for defensive retail assets. According to ITS, food-anchored retail strips in Vancouver represented the most sought-after product-market combination across Canada. This asset class was primarily valued for its defensive attributes, deriving from consistent consumer demand, dependable cash flow, and the capacity to endure economic downturns and pressures from e-commerce. Their capacity to generate steady consumer demand and reliable cash flow positioned them as integral components of many investment portfolios, offering a relatively secure refuge amidst market uncertainty.

A significant development poised to substantially influence shopping centres across Vancouver was the nationwide closure of all Hudson’s Bay department stores. This historic departure resulted in a considerable amount of vacant anchor space across numerous shopping centres in Vancouver. The most notable example was the 637,000-square-foot flagship on Granville Street, a historic terra cotta building dating back to 1914. The vacancy of such a prominent and sizable space presented both challenges and opportunities for urban revitalization. Given the limited pool of single tenants capable of occupying such large-format units, property owners will be compelled to pursue innovative redevelopment and revitalization strategies. This scenario reflects the industry’s response to previous major anchor tenant exits, where property owners successfully reimagined and diversified their retail offerings, often integrating experiential elements, mixed-use components or a curated selection of smaller, specialized retailers to attract new clientele and enhance foot traffic. Ultimately, the ability of landlords to adapt swiftly and creatively was essential in mitigating the substantial impact of these vacancies and maintaining the vibrancy of these vital retail hubs.

Industrial

In the industrial sector, Vancouver experienced a contraction in dollar volume, with transactions totalling $815 million corresponding to a 38% decrease compared to the previous year. This was indicative of a significant market shift. Investor confidence diminished amidst a challenging economic climate, complicated by the disruptive effects of tariffs imposed and anticipated by the United States, compounded further by softening domestic economic conditions. As Western Canada’s primary trade hub, Vancouver was disproportionately affected by the ongoing trade tensions. Despite the short-term volatility, according to ITS, multi-tenant industrial properties in Vancouver were ranked as the second most sought-after product-market combination worldwide.

As was reported in Altus Group’s most recent Canadian industrial market update, Vancouver’s industrial availability rate increased by 80 basis points to 4.8% year-over-year, largely due to the HBC Logistics building at 18111 Blundell Road in Richmond, encompassing 411,417 square feet, coming onto the market. On the development front, Vancouver added five new industrial buildings totalling over 383,000 square feet. Notably, three percent of this new space remained available for lease. After two consecutive quarters of positive net absorption, in the second quarter of 2025, absorption reverted to negative territory due to the delivery of new supply and increased vacancy. Looking ahead, the construction pipeline has moderated, with 2.9 million square feet of industrial space under development. Of this future supply, approximately 53% remained available for lease.

Multifamily

The multifamily sector in Vancouver experienced a notable pullback in activity, recording nearly $382 million in dollar volume transacted. This figure represented a significant 50% year-over-year decrease. This downturn can be attributed to a confluence of factors, including a surplus of condominium inventory and a lack of overall sales, which led to downward pressure on prices and extended marketing periods. These conditions were compounded by a slowdown in international migration and softening labour market conditions, creating an environment of reduced demand and heightened market uncertainty that directly impacted investor confidence.

Despite an increase in rental supply and easing of rent growth, rental affordability in Vancouver has not shown any significant improvement. According to Statistics Canada’s Q1 2025 Quarterly Rent Statistics, Vancouver recorded the highest average asking rent for a two-bedroom apartment at $3,170, a figure that represented a 27.3% increase from the first quarter of 2019. While these tight market conditions generally provided long-term support for rental demand by pushing a significant portion of the population toward rental housing, the considerable volume of new supply simultaneously created a more challenging environment for landlords. This eroded both the stability of rental income and the prospect of consistent capital appreciation. The confluence of heightened risk and elevated carrying costs for investors contributed to a reduction in overall investor confidence and fostered a more cautious approach to acquisitions.

Office

During the first half of 2025, Vancouver’s office sector experienced a decline in investment volume. The market transacted $726 million, reflecting a notable 24% decrease compared to the same period last year. According to Altus Group’s latest Canadian office market update, Vancouver’s office availability rate has remained stubbornly high, registering a 10-basis point increase year-over-year. The bifurcation in the market persisted, with leasing activity skewed towards Class A office space, reflecting investors’ continued preference for premium office product amidst evolving market dynamics. By the end of the first half of 2025, Class A transactions accounted for 38 deals, encompassing nearly 932,000 square feet. Following, Class B office space comprised 10 transactions, totalling approximately 151,500 square feet, underscoring a pronounced “flight to quality” trend in the market. This trend indicated a strategic pivot towards assets perceived as more resilient, offering superior amenities and better positioned to attract and retain tenants in a competitive environment defined by hybrid work models and a desire for high-quality workspaces.

On the development front, the second quarter saw the completion of three office buildings, adding almost 309,000 square feet to the market’s inventory, with 56% available for lease. Looking ahead, 13 office buildings, totalling 1.7 million square feet, remained under construction. Of this future supply, 24% was available for lease, suggesting that demand for new, modern office space remained robust. The limited development pipeline was a critical factor contributing to the anticipated tightening of availability in the coming months, as less new supply would be coming online to compete with existing inventory.

Land

The land sector in Vancouver, encompassing both residential and ICI land, experienced a contraction in the first half of 2025. The total transaction volume for this period reached nearly $1.4 billion, marking a substantial 48% decrease compared to the same period in the preceding year. This persistent downturn indicated a more cautious investment climate and reduced development activity across the region, reflecting the broader economic uncertainties and higher borrowing costs.

A closer examination revealed that the residential land sector accounted for the largest share of this downturn, with transaction volumes totalling nearly $462 million. This represented a significant 61% year-over-year decrease, and a gradual slowdown compared to historic averages. Developers were likely to delay new projects due to the softening demand in both the condominium and rental sectors and the higher cost of building materials. Similarly, the ICI land sector also experienced a decline, reporting $904 million in dollar volume transacted, a 38% decrease year-over-year. However, when compared to historic investment volumes, the ICI sector experienced sustained levels of demand in the first half of 2025, reflecting a continued confidence in future institutional, commercial, and industrial projects.

Figure 2 - Property transactions by asset class YTD (Q1 2025 vs. Q2 2025)

Notable transactions for Q2 2025

The following are the notable transactions for the Q2 2025 Vancouver commercial real estate market update:

1315 Broughton Street, Vancouver (Stephen Court Apartments) – Apartment

In May 2025, CAPREIT Apartments Inc. completed the acquisition of Stephen Court Apartments, a five-storey wood-frame rental building at 1315 Broughton Street in Vancouver’s West End. The property was purchased from Lantern Properties Ltd for $14.8 million. The building, which comprises 37 suites and approximately 23,076 square feet of rentable area, is situated on an 8,646-square-foot RM-5A zoned site just one block from English Bay.

The property featured a mix of bachelor, one-bedroom, and two-bedroom units, with rental rates starting at $2,025 for bachelor’s and $3,075 for two-bedrooms. On-site amenities include laundry facilities, bicycle storage, parcel lockers, elevator access, and electric vehicle charging, which contributed to its appeal in a high-demand rental market.

This acquisition aligned with CAPREIT’s ongoing strategy of securing well-located, income-generating multi-family assets in core urban neighbourhoods with strong long-term fundamentals. With stable in-place cash flow and zoning that supports higher-density residential redevelopment under the West End Community Plan, Stephen Court also presented future repositioning potential.

15420 104th Avenue, Surrey (Applewood Mazda) – Retail

In April 2025, Scochi Holdings Ltd., operating as Applewood Auto Group, completed the acquisition of 15420 104th Avenue in Surrey’s Guildford neighbourhood. The property was purchased from Comway Developments Ltd. for $18.5 million. The property featured a 14,466-square-foot commercial building, which was the location of Applewood Mazda, on a 1.88-acre site zoned CHI (Highway Commercial Industrial). While the site functioned as an owner-occupied auto dealership, it also held strategic redevelopment potential under the Guildford Plan, as the OCP and LAP designations supported low- to mid-rise mixed-use and multiple residential uses.

Located on a prominent arterial corridor with strong vehicle exposure and accessibility, the transaction underscored the continued demand for well-located commercial assets that offered long-term land-use flexibility. For Applewood Auto Group, the acquisition solidified its operational footprint while securing future development optionality in one of Surrey’s most active growth areas. With increasing densification and evolving land use priorities across Surrey’s urban nodes, sites like 15420 104th Avenue were positioned to serve a dual role, supporting immediate commercial needs while accommodating future mixed-use transformation.

Portion 9150 Bentley Street – ICI Land

In the second quarter of 2025, TransLink finalized the acquisition of a 5.06-acre portion of 9150 Bentley Street, adjacent to its existing Vancouver Transit Centre at 9149 Hudson Street. The land was acquired for approximately $63 million and, having been previously under lease, was secured as permanent operational space for Coast Mountain Bus Company services.

The acquisition extended the Vancouver Transit Centre’s total footprint from 17.31 acres to approximately 22.37, which ensured long-term capacity for bus operations and maintenance. This strategic purchase enhanced TransLink's ability to continue serving as a key transit hub amid rising pressures to expand service and transition to a zero-emission bus fleet.

6230 140th Street, Surrey – Residential Land

In June 2025, Warwickshire Homes acquired 6230 140th Street in Surrey’s South Newton neighbourhood for $15 million. The 5.7-acre site is currently zoned RA (Acreage Residential Zone) but was subject to a development application (No. 24-0015-00) that had been submitted earlier this year, proposing rezoning to RM-30 (Multiple Residential 30 Zone) and planned to subdivide the property into three lots to facilitate the development of 133 townhouse units.

Designated under the South Newton Neighbourhood Concept Plan (NCP) for single-family small lots and impacted by creeks and riparian setbacks, the site represented a transitional infill opportunity. Based on the proposed density, the acquisition equated to approximately $61 per square foot of site area and $114,662 per potential unit.

This transaction underscored continued interest in well-located infill sites suited for medium-density residential formats. For Warwickshire Homes, the deal provided a strategic foothold in a growing suburban community with strong market demand for ground-oriented housing. It also reflected the broader trend of unlocking development value from larger urban lots through strategic rezoning and densification.

557 East 10th Avenue & 2535 Carolina Street, Vancouver – Residential Land

In June 2025, Fastmark Development completed the acquisition of 557 East 10th Avenue and 2535 Carolina Street in Vancouver’s Mount Pleasant neighbourhood for a combined $7 million. The 0.25-acre site was improved with two duplex buildings and zoned RT-5. The properties were within the Broadway Plan’s rezoning-eligible area, specifically Mount Pleasant RT Areas (Area B), which supported mid- to high-rise residential development.

The properties are part of a broader land assembly that includes 569 East 10th Avenue, which had been acquired by separate ownership in July 2024 for $2.9 million. Together, the assembled site became the subject of a rezoning application proposing a 17-storey purpose-built rental tower containing 143 market rental residential units. The proposal included 20% of units allocated as below-market, with retail at grade and a two-level underground vehicle and bicycle parking. The total gross floor area of the proposed development was approximately 106,735 square feet, yielding a Floor Area Ratio (FAR) of 5.80. The total land consideration of $9.9 million (across all parcels) represented a price per unit buildable of approximately $65,800 based on the proposed density.

This transaction reflects continued momentum in Vancouver’s Broadway Plan corridor, as developers like Fastmark targeted well-located, transit-accessible sites for high-density rental housing. With municipal support for rental and mixed-use intensification in Mount Pleasant, the project was anticipated to proceed through rezoning and permitting over the next one to two years.

Figure 3 - OCR trends across 4 benchmark asset classes

Market outlook

Looking ahead, the Vancouver commercial real estate market is expected to continue its cautious stance. While the first half of 2025 was marked by significant headwinds, including economic uncertainty and geopolitical tensions, the underlying fundamentals of the market remained robust. The sharp decline in investment volume was primarily a short-term reaction to specific market dynamics, particularly the capital gains tax changes, rather than a reflection of a fundamental weakness in demand.

The long-term economic outlook anticipated for 2026 is expected to be characterized by slower growth, a gradual decline in population growth, which is expected to result in easing capital deployment. The cautious sentiment among investors is anticipated to persist, as they navigate a landscape of elevated economic uncertainty. The “wait-and-see” approach that defined the first half of 2025 is likely to continue, with investors prioritizing risk mitigation and income stability over expansion.

As a result, future growth is expected to be more measured and selective. The “flight to quality” trend is anticipated to strengthen, with investment dollars disproportionately flowing towards well-capitalized, high-quality assets in resilient sectors. The industrial and retail sectors, while not immune to broader economic pressures, are likely to remain attractive due to their fundamental nature. Conversely, sectors like land and multi-family may face ongoing headwinds, as developers grapple with softening demand, higher financing costs, and reduced population growth.

In this environment, strategic diversification and a focus on asset classes with defensive attributes will be key for investors. While Vancouver’s long-term appeal remains intact, the market is entering a period of recalibration where a more disciplined and cautious approach to capital deployment will be paramount. The remainder of 2025 is expected to be a period of stabilization and consolidation, rather than a return to the robust growth seen in prior years.

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