Canada Market Update: February 25, 2025
Written by Elliot Higgins, Analyst
Economic Update – Rate Cuts and Tariff Implications
On January 29th, the Bank of Canada continued its rate cutting cycle, lowering the overnight rate by 25 basis points to 3%, marking a continuation of the cutting cycle that began in June 2024. The first cut of 2025 was in line with economist predictions; however, it came with a message of heightened uncertainty regarding the path ahead.
Canada’s aggressive rate cutting cycle has diverged from the U.S.’s pace of monetary policy, which will ultimately continue to put pressure on the Canadian Dollar. BoC Governor, Tiff Macklem commented that the Loonie is dragging due to Donald Trump’s consistent threats of tariffs and restrictions on Canadian goods, referencing that the dollar has plunged from 74 USD/CAD to 70 USD/CAD since the election. Though rate cuts will provide immediate relief for borrowers, this drag on the Loonie can worsen conditions for developers who will feel the burden of higher construction costs and more expensive imported goods.
CAD/USD Exchange Rate September 2024-Feb 2025
Source: MarketWatch
Trump has maintained a combative stance toward Canada since taking office, imposing a 25% tariff across all Canadian goods, except for oil and gas. With inflation finally reaching the 2% target, these trade restrictions introduce unwelcome volatility, as 78% of Canada’s exports go to the U.S. The resulting price increases, slower economic activity, and reduced production will have negative implications for Canada’s industrial real estate sector, where some manufacturers may scale back cross-border transactions. This could lead to a temporary rise in industrial vacancies as tenants struggle to sustain operations amid shrinking margins.
The Ontario Home Builders’ Association (OHBA) has raised concerns over the Trump administration’s 25% tariffs on Canadian steel and aluminum, which could drive up construction costs and exacerbate housing affordability issues. OHBA CEO Scott Andison warned that the tariffs could slow residential development, lead to job losses, and increase housing prices. Ontario’s average home price in 2024 was $1,117,600, and with rising construction costs, new home prices could rise further as developers pass on the increased costs.
Hospitality Update
The Canadian Hospitality industry had a strong showing in 2024, with total transaction volumes reaching $2 billion – a 16% YoY increase. This growth was primarily driven by strong operating performance and heightened investor confidence, especially in major metropolitan areas. Ontario led the investment landscape, accounting for 47% of all transactions, followed by Alberta at 19%, and British Columbia at 14%. Revenue per available room (RevPAR) hit a record high in 2024, increasing 4% from 2023 with continued expansion expected in 2025 driven by increased international travel and a normalization in business travel post pandemic. While the weakened Canadian dollar has hurt the economy, this will spur a boost of demand from the United States, as historical trends indicate that Americans enjoy traveling when the U.S. dollar strengthens.
Canadian Investment & Lender Feedback
Across Canada, strengthening interprovincial relationships and a surge in business investment are driving economic momentum. Several major announcements this past month highlight this trend:
- Loblaw will invest $10 billion in Canada over five years to open 80 new stores, renovate their existing portfolio, and expand their supply chain.
- Trudeau awarded contracts on the $3.9 billion high-speed rail from Toronto to Quebec City.
- Walmart Canada announced a $6.5 billion investment over five years to accelerate growth.
- AstraZeneca is investing $820 million in Ontario’s life sciences sector.
These commitments signal a resurgence in the Canadian market, with increasing demand for capital as acquisition activity gains momentum. Largo recently met with our correspondent lenders at the MBA Conference, and a common theme emerged; they are increasing their allocations in 2025 and are looking to deploy capital quickly with competitive rates. Their appetite aligns with these large-scale investments, as lenders seek to expand allocations in multi-family, industrial, and retail assets. While banks remain restrictive, requiring high minimum deposits and enforcing stringent covenants—our life insurance correspondents are actively lending and eager to place capital in the market.
British Columbia: Registration # X300346 • Quebec: Mortgage Agency Brokerage License #3001949759 • Ontario: Mortgage Broker License #10454 | Mortgage Administrator License #11669
