One real estate expert says there are five key impacts U.S. tariffs are having on Canada’s commercial real estate industry, while highlighting some silver linings for industry.
U.S. President Donald Trump is expected to bring about sweeping new reciprocal tariffs on April 2 coupled with previously delayed tariffs on Canadian and Mexican goods. On Friday Trump thanked Prime Minister Carney for an “extremely productive call.” On Thursday, Carney said in a news conference that it is clear the U.S. is “no longer a reliable partner” and that successive governments in Canada will have a “different relationship” with the U.S.
As tariffs loom over the Canadian economy, Adam Jacobs, head of research at Colliers Canada, outlined five key impacts on the commercial real estate industry in an interview with BNNBloomberg.ca on Thursday. He said the impact of tariff threats is having cascading effects across the Canadian dollar, interest rates, industrial real estate and uncertainty, with uneven impacts across regions.
However, Jacobs highlighted certain silver linings that could partly insulate Canada’s commercial real estate industry.
“Real estate isn’t an export industry. You don’t package it up to sell it to the U.S. …everything’s local,” he said.
Jacobs added that he thinks commercial real estate will not be immune to the downside impacts of tariffs but could fare better than industries that are more entangled with the global economy and exports.
“Toronto real estate doesn’t get exported anywhere it has a certain value and a certain level of demand, and tariffs will be a negative, but I don’t think they’re going to be quite the negative that maybe they are in some other industries,” he said.
- Loonie
Given more than 75 per cent of Canadian exports move to the U.S., Bloomberg News reported Thursday that tariff threats have had an outsized impact on the loonie, trading around 0.70 cents U.S. on Friday.
Jacobs highlighted that the Canadian dollar had been moving lower but has since stabilized.
“But that is another one of those mixed blessing situations, the weaker the dollar gets, it causes us (commercial real estate) some problems in terms of inflation, the cost of materials,” he said.
“But we have seen a fair bit of interest from German investors, Japanese investors, if you’re transacting in a currency that isn’t the Canadian dollar that can actually weirdly be helpful for the market.”
- Interest rates
On Wednesday, the Bank of Canada signalled it would have likely paused its interest rate easing cycle earlier in March absent the downside threat to Canada’s economy from tariff uncertainty. The central bank elected to cut its key policy rate by 25 basis points on March 12 to 2.75 per cent.
Jacobs highlighted much of the economic environment cuts both ways for real estate.
“We’re one of those industries that weirdly benefits from economic bad news,” he said.
Lower borrowing costs can be a tailwind for the commercial real estate sector, according to Jacobs, as the industry requires “so much debt.”
“The big question for us is interest rates, that’s been the story of the last five years basically in real estate. Nobody thought rates can get that low, nobody thought rates can get that high,” he said.
“We’re now, we’re on the path back down to normal. But nobody knows what normal is. And I think this is throwing a bit of a wrench in that.”
Going forward, Jacobs said uncertainty around further cuts is “stalling things” in the market. He pointed to seven rates cuts that have occurred since June alongside some expectations of further reductions in borrowing costs.
- Industrial downside
According to Jacobs, the industrial real estate sector, including the warehouse logistics market, has largely “carried” commercial real estate during the last four to five years, adding the sector has been “kind of unstoppable.”
“It seems like everything that happens tends to benefit that area, like (a) global lockdown and school closure, that’ll be great for Amazon and Costco and home delivery and same day grocery and all that…So population growth fed into it, COVID-19 fed into it, the expansion of just all these same day delivery things,” he said.
Given the current tariff concerns, Jacobs said the industrial real estate sector is tied to things like agriculture, automotive resources, oil and more, which are all “big export industries.”
“That’s why we’re keeping our eye out. We still have a pretty strong industrial market, but more than many other sectors, it’s quite tied to these physical export type of industries. So, I think that’s the downside that we’re most worried about,” he said.
- Uncertainty kills deals
Downside impacts from tariffs are likely to be unevenly distributed, according to Jacobs.
“There’s certain areas that probably aren’t going to feel much impact (from) tariffs at all,” he said
“Whereas (areas) like southwestern Ontario, because of auto manufacturing, because of auto parts and assembly that’s probably going to take, unfortunately, an outsized hit in terms of all this, as well as areas that are maybe more dependent on oil refining, aluminum manufacturing, that sort of thing.”
Silver linings
Given downside impacts of tariff fears, Jacobs said there are also likely to be silver linings.
Specifically, he pointed to Canadian retailers, manufacturers or food producers that could benefit from buy Canada sentiment, saying they might have their “best year ever.” Additionally, the hospitality industry could benefit from increased domestic travel, which could benefit hotels and restaurants.
The current circumstances might also spur infrastructure improvements, according to Jacobs, which would benefit real estate broadly.
“Real estate is kind of dependent on a lot of these big infrastructure projects that take forever and they’re so expensive and they’re always getting stalled,” he said adding that if Canada responds to tariffs with infrastructure investments it could “be very beneficial to real estate.”
“It’s partly just the sentiment aspect of people feeling like this is happening. People feel like the dam is broken and things are possible, we’re sort of back in growth mode,” Jacobs said.
U.S. President Donald Trump’s reciprocal tariffs on trading partners are set to take effect on April 2, a day he has proclaimed as “Liberation Day” for American trade. CTV News will have extensive coverage across all platforms:
- CTVNews.ca will have in-depth coverage, real-time updates, and expert analysis on what the tariffs will mean for Canadians.
- CP24.com will report on any developments out of Queen’s Park and what the tariffs means for the people of the GTHA.
- BNNBloomberg.ca will explain what this means for the business community, investors, and the market.
