When real estate management giant KingSett Capital Inc. recently suspended investment payments in its large Canadian Real Estate Income Fund, something significant happened: no one seemed alarmed.
In late November, the Toronto-based firm announced that holders of the $4.9 billion (US$3.5 billion) private fund will not get distributions for the coming year and won’t be able to redeem their units. Distributions will restart in December 2025, KingSett chief executive officer Rob Kumer said in an emailed statement to media.
He framed the problem as a challenging market for selling properties in Canada’s current economy, with weak growth and interest rates still high enough that the Bank of Canada sees room for further cuts.
“Our buildings are full, and our tenants are paying rent,” he said. “Unfortunately, we have seen downward pressure on property values and illiquidity in the market. In this environment, the right thing to do is to retain liquidity and fortify our balance sheet so that we are well positioned to generate growth in the recovery that will follow.”
That was big news, or should have been. But since that November shocker from Kingsett—a leader among Canadian private equity property firms, with such marquee assets as Toronto’s Scotia Plaza and the Fairmont Royal York Hotel—there has been barely a ripple in the commercial real estate market.
Why? Experts decline to comment directly on KingSett’s decision, but there does not appear to be much concern that it has great significance for the overall Canadian market in the coming year. It is being characterized more as a defensive move, an effort to shore up resources in advance of a year that could see a turbulent economy and significant political change, but also possible growth in commercial real estate dealmaking.
In short, Canada’s commercial real estate prognosticators are calm, despite a lukewarm outlook for Canada’s economy in the coming months. On Dec. 11, the Bank of Canada cut its key lending rate by 50 basis points, to 3.25 per cent, and noted that the fourth quarter of 2024 looks weaker than projected. The BOC cited “excess supply, and recent indicators tilted towards softer growth than projected,” and noted that “the possibility [that] the incoming U.S. administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.”
And yet?
“In spite of these very real challenges, Canada remains a growth play,” says CBRE Research in its new 2025 Canada Real Estate Market Outlook, released in early December.
In fact, the experts expect that 2025 is poised to be a year of increased activity and, depending on how global bond markets perform, Canada’s investment community can expect to see more leasing and investment in the commercial market.
Wait-and-see defensive moves such as KingSett’s appear to be a response to shorter-term issues, in particular the current overabundance of commercial space, which should tighten as next year progresses.
“Leasing fundamentals are improving on the whole, though Canada has seen significant amounts of new supply in the office, industrial and residential sectors, which will take time to work through,” says Mark Meehan, CBRE’s managing director, research, in the report.
There could be an uptick in commercial real estate dealmaking, which may already show up when fourth-quarter figures for 2024 come out, says Scott Figler, director of research at JLL Canada.
“It seems pretty clear that the first quarter was the bottom for commercial real estate markets, and things are looking up in the coming months,” he said in a recent interview. “In a typical quarter in Canada, there are around $10 billion to $11 billion in property trades, and in the third quarter this year we were only at about $9 billion.”
Kumer’s observation that KingSett’s buildings are full may also reflect growing efforts by employers to either entice or compel employees to spend more time working in the office and less time working from home. According to research by KPMG, 83 per cent of Canadian CEOs expect a full return to the office within the next three years. This is up from 55 per cent in 2023, according to the KPMG survey, done in July and August this year.
The commercial real estate investment market in Canada may also see an upsurge in interest and activity from U.S. investors, because of the strong U.S. dollar and the weak Canadian Loonie, says Ken McKinnon, senior managing director and equity partner at Institutional Mortgage Capital (IMC) in Toronto.
“There could be a lot of interest from U.S. investors hunting for bargains in Canada,” he says.
Talk of punishing tariffs and imminent political changes in Ottawa have contributed to the Canadian dollar dipping below 70 cents U.S., its weakest point since the onset of the COVID-19 pandemic in March 2020. Most experts suggest it’s unwise for investors to react suddenly to the ups-and-downs of politics or panicky money market moves.
“Tenants have become more refined in what’s driving their real estate decisions,” CBRE’s 2025 report says. “High-quality offices in vibrant locations will continue to attract tenant interest and lead to tighter vacancy in the best locations.”
Indeed, broken out by segment, the vacancy rate for “trophy” office properties in downtown locations in Canada is 10.1 per cent, compared with 25.1 per cent for less coveted Class B sites such as those in suburbs or at the edges of cities, CBRE says.
CBRE also notes that marquee office properties are in particularly high demand south of the border, and Canadian demand may follow a similar trend. Building occupiers “seek amenitized buildings … both the building and the surrounding neighbourhood play a crucial role in creating an exceptional employee experience that remote work can’t replicate,” CBRE says.
From that longer-term perspective, the November announcement from Kingsett looks much less like big news—and much more like a big yawn.
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