Trade Disruptions, Inflation Pressures, and the CRE Recovery in Canada
By Elliot Higgins, CFA – Associate, and Daniel Lester – Analyst
Life Insurance Company Lending Outlook
Life insurance companies are becoming an increasingly attractive financing option, especially as bank rate spreads widen and securing loans becomes more challenging compared to earlier this year. This is largely due to current market volatility. Life companies offer several key advantages:
- Competitive spreads
- Long-term fixed rates (5-30 years) for predictable debt service
- Rate lock at application for interest rate protection
- Typically, non-recourse loans, limiting borrower exposure
Unlike banks, which are sensitive to ongoing deposit requirements and short-term market shifts, life insurance companies have long-term liabilities. This fundamental difference makes them eager to deploy capital and less susceptible to immediate market movements, positioning them as a more stable and reliable funding source in uncertain times.
Navigating Trade Tensions and Inflationary Pressures
The Canadian CRE market has demonstrated resilience despite ongoing trade tensions with the U.S. stemming from tariffs initiated by Donald Trump. Prime Minister Mark Carney has helped mitigate these impacts, outlining a comprehensive plan to support Canada amidst the turmoil.
Carney’s new government has responded firmly, implementing reciprocal tariffs on U.S. goods (a 25% tariff on non-CUSMA compliant vehicles, with revenue supporting auto workers), establishing a $2 billion Strategic Response Fund, and launching an “All-in-Canada” Auto Manufacturing Network. Optimism for the industrial market remains, as positive trade deal negotiations with the UK and China suggest that the current restrictions could be transitory.
Core Canadian income-producing assets have seen a notable recovery. Greater Toronto Area (GTA) CRE investment rebounded significantly in Q1 2025, reaching $3.1 billion—a 26% year-over-year increase. The industrial sector remains a key driver, attracting $1.4 billion (45% of total GTA volume). The retail sector also experienced substantial growth, with investment jumping 60% to $937 million (30% of total GTA investment), largely in necessity-based assets. However, Hudson’s Bay’s March 2025 creditor protection filing poses a potential disruption to the retail landscape.
This rebound is further highlighted by major transactions, including Brookfield Asset Management successfully raising US$16 billion for its Brookfield Strategic Real Estate Partners V fund, and Sunoco LP offering US$9.1 billion to acquire Calgary-based Parkland Corporation. We’ve observed continued strong interest from both Canadian and American investors in cross-border transactions. Our established relationships with capital sources on both sides of the border position us well to keep facilitating these opportunities.
Inflationary Outlook and Bank of Canada’s Rate Decision
While the headline inflation rate dropped to 1.7% year-over-year in April, largely due to the removal of the carbon tax and lower energy prices, the Bank of Canada’s preferred core inflation measures accelerated to approximately 3.15%. This indicates that underlying price pressures persist despite the decline in the headline figure.
This divergence significantly complicates the Bank of Canada’s upcoming June interest rate decision. Previously, a rate cut seemed likely, but the continued strength in core inflation, coupled with other economic uncertainties like U.S. trade tariffs, may lead the Bank to hold its policy rate at 2.75%. In the most recent policy announcement, Bank of Canada Governor Tiff Macklem expressed a need for more data and a closer watch on the situation with the U.S. before considering future cuts to manage the troubling inflation situation.
