Oh Canada: Why International Investors Might Want a Second Look at Canadian CRE

Real assets, while a substantial piece of the investable universe, require a medium- to long-range view (due to high transaction costs, tax effects, occasional illiquidity, and counter-cyclical portfolio benefits, among other reasons). As levels of uncertainty continue to increase in the US, investors are beginning to ask, is Canada a suitable replacement or augmentation for a North American investment allocation, and in what ways might the Canadian market be different?

MARKET FUNDAMENTALS

At first glance, Canadian and US economies and real estate markets offer remarkably similar characteristics. As evidenced by the currently elevated availability levels, Canadian markets are generally more disciplined, with less overbuilding and fewer exotic financing vehicles resulting in periodic market liquidity issues.

Key reasons for this greater Canadian market discipline include generally more strict planning regulations, absence of non-recourse financing and high levels of institutional ownership, particularly by Canadian Institutions in their home markets. Another key difference is the enormous variation in affluence and growth in specific US markets with 60% of US cities being primarily suburban in character, while all Canadian cities have urbanized and thriving downtowns, with rigorous urban growth boundaries.

Both Countries have a high level of REIT ownership in the Retail sector, with far fewer and more productive malls found in Canada. High street retail is uncommon in but a handful of US cities, while also investable in Canada.

Retail per capital space in the US has been gradually declining for several decades as malls, which fell out of favor in the US, are being converted to other uses, including industrial and data centers.

More recently, weak suburban office markets in both countries have seen use conversions, primarily to logistics, which fared well through the pandemic. Select weak downtown markets, such as Calgary, Chicago and Washington DC have seen extensive use conversions, predominately to residential, facilitated by favorable permitting and even government subsidies. This is a trend which is likely to spread to more markets, especially once new construction returns, and functionally obsolete product becomes effectively stranded.

Historically, the US market has been seen as deep, broad, and heterogeneous with favorable and well understood tax and structural features. International investors have invested predominately in the handful of “gateway” highly urbanized cities such as San Francisco, New York, Washington, DC, and Boston. Post-pandemic, a few suburbanized locations have been added to the list, such as major cities in Texas.

Canada, by contrast, has fewer large cities and more closely resembles the German market with strong and thriving regional economic diversity. The historic critique of Canada’s investability has been how closely held the markets are, a factor that has improved in the last two decades as Canadian institutions have become among the world’s most active international investors that are increasingly bringing high quality assets in Canada to the market.

The last noteworthy difference between the two markets is climate and attitudes concerning decarbonization and climate resilience. Assets in Canada on average are newer or more recently upgraded, and it is rare that institutional-quality assets would lack an environmental certification and higher performance characteristics.

CANADIAN INVESTMENT PERFORMANCE

Leading global investors have long admired Canada for it’s strong banking system, sophisticated investment community, diversified economy, and positive trade and immigration policies; but it is doubtful most investors realize the extent to which this cadre of competitive advantages translates into persistent investment outperformance of the Canadian economy and specifically, its property markets. With one of the longest consistent time series of private data and amongst the highest institutional participation rates (over 65%), the Canadian market offers superior transparency, strong income characteristics and relatively low volatility.

The US market offers similar total returns with significantly higher volatility and longer periods of illiquidity resulting in longer and deeper downturn cycles.

The robust REIT markets in Canada and the US have also outperformed within the G-7.

Normalizing all indices to be measured in US dollars, the chart to the left measures the value of $100 USD invested over time in the broad REIT index, by Country.

Canadian REITs outperformed their global counterparts, with much of the outperformance related to higher and more consistent income returns, with shorter and shallower downturns.

CANADIAN ECONOMIC PERFORMANCE

Underpinning this excellent performance has been strong economic fundamentals. Between 2008 and 2024, Canada not only enjoyed the G7’s fastest growing population (24.2% growth) and highest rate of employment growth (19.2%), but also the fastest pace of GDP growth, in part due to escaping the worst effects of the GFC, combined with tailwinds from surging levels of highly skilled immigrants.

Although immigration has been scaled back for 2025 and 2026, and despite the US threatened tariffs, these outperformance attributes are projected to continue for a further decade, producing the top projected population and real GDP growth for the G7 (annual compounded growth of nearly 2%) in the decade ahead.[2] Initially thought to adversely impact Canadian GDP by as much as -125 bps, the actual effect of US tariffs to date has been far more muted. and latest Bank of Canada forecasts expect no more than 50 bps impact under worst-case scenarios involving renegotiation of the USMCA. Policy responses by the Canadian government have been swift, and—so far—effective in blunting the worst impacts.

Although roughly two-thirds of Canadian goods are exposed to foreign trade, (especially vis-à-vis the US), the Canadian economy is highly diversified. Perceived to be a raw materials-heavy economy (i.e., mining, oil and gas, agricultural products, and timber); these industries are overrepresented in the Canadian stock market, but in aggregate contribute a small portion of overall GDP (6-8%) and employment (5-7%), while manufacturing is slightly higher (8-9%). Traditional service sectors comprise by far the largest components of employment and GDP (75%, up from 70% a decade earlier) according to 2025 data from Stats Canada. Importantly, technology employment has been the fastest growing sector as Canada has benefited greatly from regressive education and immigration policies in the US.

Canada boasts the best educated workforce the G-7, with 57.5% of adults of working age in Canada possessing a bachelor’s degree or higher. Half of all the very most highly educated Canadians (Master’s degree or higher) are immigrants, many are just hitting stride in terms of their economic contributions.

The government employs roughly 25% of Canadians between various layers of Government, public education (including higher ed) and health care sectors. The largest non-governmental components of Canadian GDP are finance, insurance, and real Estate (14%); tech (14%); and construction (13%). And like most modern economies, the trend in Canada is toward services (especially digital services, gaming and artificial intelligence) and away from goods producing, mining, and extraction.

The Canadian dollar fluctuates with oil prices, as oil is a large component of exports. Known colloquially as the “Loony,” it straightforward to hedge, and it is generally range bound with the USD. Beginning in 2023, as the US and OPEC began increasing oil output in efforts to put pressure on Russia, the Canadian dollar began a steady devaluation, accelerated by early movement by the Bank of Canada to lower interest rates. The result is one of the most attractive currency environments for foreign investors in over a decade.

THE OUTLOOK

With continuing disruption in long-standing US economic policy, now seems an opportune time to consider looking North for opportunities. With strong fundamentals and tailwinds, good quality and high volume of deal flow with ample debt availability, there are many reasons to consider looking at Canada.

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Note from the Editor: Issue #19

Mid-Year Pulse: Global Investors on the Economy, Energy, and Housing

Benjamin van Loon | AFIRE

Bend, Not Break: Investing in Real Estate Amid Economic Uncertainty

John Murray + François Trausch + Russell Gannaway + Kirill Zavodov | PIMCO

Test Of Time: How US Real Estate Withstands an Uncertain Investment Market

Riaz Cassum | JLL

Oh Canada: Why International Investors Might Want a Second Look at Canadian Real Estate Markets

Amy Erixon + Long Tang + Daniel Goldberg + Marie-France Benoit | Avison Young

Beyond Oil: Why Gulf Family Offices Are Doubling Down on US Logistics, Data, and Housing

Abbas Hashmi | Saudi Family Holdings

South of the Border: Higher Yields and Growth in Mexican Industrial

Shaun Libou | Raymond James

Migration Myth: NIMBYism and Why Coastal Movers Aren’t Affecting Sunbelt Housing Supply

Donal Warde | Consultant + Ron Bekkerman | Constellation Data Labs

Machine Center: The AI-Driven Transformation of Data Center Investment

Sam Chandan | Chen Institute for Global Real Estate, NYU Stern School of Business

AI in Commercial Real Estate: A Practical Guide for Industry Leaders

Armel Traore Dit Nignan + Shaarvani Kavula | Principal Real Estate

Artificial Control: Are You Ready for AI Management and Oversight?

Marie-Noelle Brisson + Michael Savoie | CyberReady, LLC

Capitalizing on Dynamics: Demographic Mega-Trends Impacting CRE

Stewart Rubin | New York Life Real Estate Investors

Mid-Cap Assets: An Under-Examined Segment in CRE

Asaf Rosenheim | Profimex

The Lifestyle Renter: A Growing Opportunity for Strategic Investment in High-Quality Apartment Communities

Hannah Waldman | The Dermot Company

The Climate Is Speaking: CRE Underwriting for a Future That’s Listening

Ines Diez + Thomas Stanchak | Stoneweg

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