Canadian real estate leaders face a critical moment. Looming interest rate cuts, stricter immigration policies, and rising federal 10-year bond yields are reshaping the market landscape. Against this backdrop, leaders must act decisively to adapt, innovate, and succeed.
The industry is now deeply entrenched in volatility, uncertainty, complexity, and ambiguity (VUCA). To thrive in this environment, companies must balance long-term strategic clarity with short-term adaptive agility — blending deliberate and emergent strategies to stay competitive.
Deliberate strategies, championed by strategist Michael Porter, involve intentional, planned actions aligned with a clear vision. On the other hand, emergent strategy, as introduced by Canadian academic Henry Mintzberg, evolves organically in response to unexpected opportunities and market shifts.
Adopting a hybrid approach allows real estate companies to remain resilient amid economic changes, regulatory shifts, and industry disruptions. This philosophy aligns with broader industry thinking on innovation and resilience — themes emphasized by Karl Moore, Associate Professor of Strategy and Organization at McGill University.
To stay ahead in 2025, Canadian real estate leaders must rethink their strategies, stay agile, and embrace a VUCA-ready mindset. Here’s how real estate companies can recalibrate and lead with confidence through this year’s complex market dynamics.
Table of Contents
Volatility is the new normal.
There is no return to normalcy. While deliberate, long-term planning remains critical—particularly in preparing for upcoming interest rate cuts—the unpredictable timing and magnitude of economic and political disruptions demand emergent flexibility. Real estate leaders must be ready to pivot borrowing strategies quickly to protect margins and seize opportunities.
Canada’s newly announced cap on temporary residents signals a broader economic rebalancing. This shift calls for deliberate diversification strategies to manage portfolio risk, complemented by emergent tactics that allow for rapid responses to sudden changes in housing demand.
Although developers welcomed the 2024 tax changes, including the goods and services tax (GST) relief for new rental construction, these measures alone are unlikely to counterbalance escalating development charges and the ongoing challenges of approval delays.
Read more: Coyyn
According to city data, the gap between development charges for condominiums and purpose-built rentals has widened sharply since 2022. As of May 2024, the development charge for a two-bedroom condo has risen to $80,690, compared to $48,290 for a two-bedroom rental unit. This marks a dramatic increase from 2009 when development charges for both asset classes hovered around $8,000.
Meanwhile, condo pre-sale rates have plummeted—from 70% in previous years to well below 50% in 2024—driven by interest rate hikes and Canada’s ban on foreign buyers, amplifying market volatility.
For condo developers, pairing deliberate and emergent strategies is critical to navigating this environment. Long-term resilience can be achieved by diversifying portfolios to include rental properties rather than doubling down on existing condo-focused models. Building a collaborative advantage—finding trusted partners to co-develop rental opportunities—can help developers respond more nimbly to shifting market conditions.
At the same time, developers should remain vigilant. As policy dynamics shift, a rebound in the condo market could materialize by 2026, reinforcing the importance of diversification and strategic agility.
To stay competitive, real estate companies must recraft and reposition their unique value propositions, emphasizing operational excellence—a core principle of deliberate strategy. This includes reassessing market visibility and rethinking value drivers such as revenue streams, cost efficiencies, and investment returns.
Building internal capacity, leveraging technology, and streamlining operations are essential to resilience. Strategic outsourcing can also enhance operational efficiency while adopting emergent solutions, which ensures companies are well-positioned to stabilize operations and seize new opportunities as they arise.
Opportunities despite uncertainty
Lending conditions in Canada are projected to ease; however, uncertainty continues to challenge the office sector, land markets, and residential condo developments, tightening financial constraints.
Although industry leaders may lean on deliberate fundraising narratives to secure capital, uncalled investor commitments are now at their lowest levels in six years.
Preqin data indicates a sustained appetite for opportunistic and value-added real estate investments in Canada, signaling that dry powder remains ready for deployment. Acquiring unsold residential inventory at discounted prices has emerged as a key strategy to offset softening demand in the condo market, allowing developers to better navigate ongoing market uncertainties. This underscores the growing importance of emergent strategies that capitalize on unexpected opportunities.
At the same time, the sharp rise in interest rates has pushed many investors to the sidelines. Fundraisers must rethink their unique selling propositions, blending strategic clarity with adaptability. Crafting compelling, investor-centric narratives will be crucial to securing capital in a more selective environment. By leveraging distinctive strengths and tailoring their approach to align with investor expectations, fundraisers can position themselves as resilient leaders in an increasingly dynamic market.
It’s complicated — money has a price.
The era of easy money is over. Today’s real estate market demands a sophisticated blend of deliberate and emergent strategies, with a sharp focus on amplifying unique value propositions.
With the high cost of capital reshaping financial landscapes, real estate leaders must implement thoughtful cost-cutting measures and reassess distribution strategies to preserve liquidity and strengthen resilience.
Developers can carve out a competitive advantage through vertical integration—asserting greater control over operations, accelerating project timelines, and creating distinct, investor-attractive offerings. Well-capitalized developers, in particular, are positioned to internalize critical stages of the value chain. By leveraging in-house teams of architects, engineers, construction specialists, and leasing and property management professionals, they control both upstream and downstream activities, enhancing operational efficiencies and brand differentiation.
This vertical integration reflects a deliberate strategic choice, enabling firms to enhance performance and stand out in a crowded, highly competitive market.
Meanwhile, Canadian funds seeking to attract international investors must navigate rising expectations around global climate and social responsibility standards. Challenges such as Scope 3 emissions reporting and double materiality disproportionately impact smaller firms, making global compliance a significant operational hurdle.
Despite these pressures, companies that realign their value propositions and adapt to international ESG benchmarks will position themselves to win investor trust and global capital. Embracing emergent strategies that balance local market realities with international compliance requirements will be key to thriving in this new environment.
Ambiguity highlights the need for disruption.
Canada’s construction sector faces mounting ambiguity as economic risks shift from inflation to unemployment. The industry urgently needs over 500,000 workers by 2030, yet the talent pipeline is under strain due to retirements, difficulties attracting young workers, and broader systemic challenges.
According to a study commissioned by King’s Trust Canada, reducing youth underemployment and unemployment could add $18.5 billion to Canada’s real GDP by 2034. Despite youth unemployment reaching a 12-year high of 14.5% in 2024, the construction sector continues to struggle with attracting new talent.
Rising costs, persistent supply chain disruptions, and stagnant housing starts as of October 2024 further illustrate the sector’s inability to meet escalating demand. A fundamental shift in mindset is now critical to address these growing challenges.
External disruptors are accelerating change across the Canadian real estate and construction landscape, forcing established players to either adapt or face obsolescence. Forward-looking strategies must prioritize cost efficiencies through economies of scope, adaptability, scalability, and maintaining optionality — offering a practical framework for managing uncertainties across labor, materials, and regulatory shifts.
Ambiguity is especially acute in market dynamics, emphasizing the need for stronger coordination between industry stakeholders and government bodies.
During a November interview with Smart Density at the Kehilla Residential Programme, Ana Bailão—Toronto’s former deputy mayor and head of affordable housing and public affairs—stressed that forming robust partnerships, stacking government programs, and remaining agile is essential to navigating uncertainty in affordable housing.
Leaders in Canada’s construction sector must embrace ambiguity as a catalyst for innovation and reinvention. Future success depends on the ability to collaborate creatively, anticipate the unknown, and build resilient frameworks that adapt to evolving demands.
Why selected Canadian REITs shine in a pullback
Real estate investment trusts (REITs) offer a way to invest in real estate without the complexities of owning physical property. By law, REITs must distribute the majority of their profits as dividends, making them powerful income-generating assets.
Currently, many TSX-listed REITs are trading below their net asset value (NAV)—the estimated value of their properties minus outstanding debt. In effect, investors have the opportunity to buy $1 worth of assets for just $0.80.
What makes this even more attractive is tenant composition. Many of these REITs lease space to essential service providers such as grocery stores, healthcare facilities, and pharmacies—businesses that remain resilient across all economic cycles. This combination of discounted valuations, strong dividend yields, and recession-proof tenants positions TSX-listed REITs as a compelling defensive investment with meaningful upside potential.
Frequently Asked Question
What is driving market volatility in Canadian real estate in 2025?
Market volatility in 2025 is primarily driven by a combination of economic shifts, such as interest rate changes, stricter immigration policies, and rising costs due to inflation. These factors contribute to uncertainty, especially in residential and commercial property markets.
How can Canadian real estate leaders navigate interest rate changes?
Real estate leaders should stay flexible by blending deliberate strategies (long-term planning) with emergent approaches (adapting quickly to new conditions). This might involve adjusting borrowing strategies, diversifying portfolios, or even embracing vertical integration to control costs and improve operational efficiency.
What role do deliberate and emergent strategies play in real estate?
Deliberate strategies involve planned, long-term actions aligned with a clear vision. Emergent strategies, on the other hand, are flexible and responsive to unforeseen market shifts. Combining both strategies helps real estate leaders stay resilient in an unpredictable market.
What are the key challenges Canadian real estate leaders will face in 2025?
Key challenges include rising development costs, tightening lending conditions, evolving immigration policies, and the increasing complexity of meeting sustainability and regulatory standards. Leaders must navigate these uncertainties while maintaining profitability and adaptability.
How can real estate companies address labor shortages in the construction sector?
To address labor shortages, real estate leaders can focus on developing a more diverse talent pipeline, invest in workforce development, and explore innovative solutions like automation or off-site construction techniques to reduce dependency on traditional labor forces.
What impact will stricter immigration policies have on Canadian real estate?
Stricter immigration policies could reduce demand for housing, particularly in major urban areas. However, real estate leaders can adapt by diversifying their portfolios, focusing on affordable housing projects, and ensuring they stay aligned with shifting demographic trends.
How should Canadian developers adjust to rising construction costs?
Developers should focus on cost-efficiency through economies of scale, vertical integration, and more streamlined operations. Additionally, they may need to rethink project timelines, reassess design elements, and work closely with suppliers to mitigate the impact of rising costs.
Conclusion
As 2025 brings new challenges and volatility to the Canadian real estate market, the key to success lies in adaptability, strategic foresight, and a strong commitment to innovation. Real estate leaders must leverage a combination of deliberate strategies—grounded in long-term vision—and emergent strategies that enable quick pivots in response to unexpected market shifts. By diversifying their portfolios, optimizing operational efficiencies, and embracing new technologies, leaders can position themselves for resilience and growth.
Navigating the complexities of rising costs, labor shortages, and regulatory shifts will require a deep understanding of market dynamics and a proactive approach to collaboration and partnership. Whether addressing labor shortages, embracing ESG standards, or staying agile in the face of economic uncertainty, Canadian real estate leaders have a unique opportunity to redefine their business models and drive long-term value.