Start with the basic building block of all narrative.

In a village of La Mancha, the name of which I have no desire to call to mind, there lived not long since one of those gentlemen that keep a lance in the lance-rack, an old buckler, a lean hack, and a greyhound for coursing.

core/paragraph

Paragraph

<p>In 2024, Vancouver's commercial real estate (CRE) market was being shaped by a complex mix of macroeconomic forces and local factors. From stabilizing inflation and shifting interest rates, to urban planning initiatives and changes in the labor market, these dynamics are creating both challenges and opportunities for tenants, landlords, and developers. As 2025 approaches, adaptability, awareness, and proactive decision-making are increasingly recognized as essential in navigating this evolving landscape.&nbsp;</p>

Introduce new sections and organize content to help visitors (and search engines) understand the structure of your content.

core/heading

Heading

<h2 class="wp-block-heading">Economic Drivers&nbsp;</h2>

<h3 class="wp-block-heading"><em>Inflation Stabilizes</em></h3>

<p>Inflation has significantly eased from its 2022 peak of 8.1%, stabilizing at 2% in late 2024, within the Bank of Canada’s target range of 1%-3% (<em><a href="https://www.bankofcanada.ca/2024/11/sticking-landing-keeping-inflation-at-2/">Bank of Canada</a></em>). This trend is expected to continue, with Canada’s inflation rate averaging 2% in 2025 and 2.5% in 2026 (<a href="https://tradingeconomics.com/canada/inflation-cpi" target="_blank" rel="noreferrer noopener"><em>Trading Economics</em></a>). As inflation eases, tenants may benefit from lower operating expenses, making lease renewals, relocations and expansions more appealing.&nbsp;</p>

<p>For landlords, stable inflation limits opportunities for significant rent increases, emphasizing the need to focus on high-quality spaces to attract top-tier tenants. Meanwhile, construction costs in Vancouver are expected to remain high through 2025, driven by persistent labor shortages, high material costs, and supply chain challenges.&nbsp;</p>

<h3 class="wp-block-heading"><em>Interest Rates Ease</em></h3>

<p>The Bank of Canada has eased borrowing conditions by lowering interest rates from a 2024 peak of 5% to the current 3.25%. However, financing remains costly, and developers are cautious about launching new projects until further rate cuts create more favorable margins. Additionally, developers are monitoring leasing activity closely, as adequate pre-leasing levels will be critical for moving stalled projects forward (especially with some lenders requiring much higher thresholds for pre-leasing).&nbsp;</p>

<p>Investors are waiting for improved market conditions, as demonstrated by large property owners halting equity redemptions due to illiquidity stemming from high interest rates and sluggish economic growth. Another rate cut in early 2025 could boost market activity, but increased demand in the spring might drive up property prices, potentially offsetting the benefits of lower interest rates. &nbsp;</p>

Insert an image to make a visual statement.

core/image

Image

<figure class="wp-block-image size-large"><img src="https://wordpress-758785-2566078.cloudwaysapps.com/wp-content/uploads/2024/11/Bank-of-Canada-Headquarters-in-Ottawa-Arch-Daily-1024x682.jpg" alt="" class="wp-image-4293"/><figcaption class="wp-element-caption">The Bank of Canada headquarters in Ottawa, Ontario— reduced interest rates from a peak of 5% to 3.25% in 2024. (Photo: Arch Daily)</figcaption></figure>

<h3 class="wp-block-heading"><em>Labour Market Changes&nbsp;</em></h3>

<p>BC's unemployment rate reached 5.7% in November 2024, reflecting a gradual recovery from summer highs, particularly affecting youth aged 15 to 24 in the challenging job market (<a href="https://chrome-extension//efaidnbmnnnibpcajpcglclefindmkaj/https:/www2.gov.bc.ca/assets/gov/data/statistics/employment-labour-market/lfs_data_tables.pdf" target="_blank" rel="noreferrer noopener"><em>Government of BC</em></a><em> </em>and <em><em><a href="https://www.bccpa.ca/news-events/cpabc-newsroom/2024/november/is-bc-s-economy-heading-for-a-soft-landing/">CPA British Columbia</a></em></em>). With tighter immigration policies, the surplus labor force is expected to be gradually absorbed. The rate is forecasted to drop to 5.2% in 2025 and 4% in 2026 (<em><a href="https://www.central1.com/pdf_files/economic-analysis-of-b-c-b-c-economic-outlook-2024-26/">Central 1 Economics</a></em>).  </p>

<p>Canada, known for its open immigration policies, introduced stricter measures in 2024 to address rapid population growth, housing challenges, and unemployment. These include reduced permanent resident targets and limits on temporary residents, with the net non-permanent resident population projected to decline to 5% of the total by 2026 (<em><a href="https://www.canada.ca/en/immigration-refugees-citizenship/corporate/mandate/corporate-initiatives/levels/population-growth-2014-2027.html">Government of Canada</a></em>).&nbsp;</p>

<figure class="wp-block-image size-large"><a href="https://catalogue.data.gov.bc.ca/dataset/466ddecd-2701-4e97-84fb-df60bd5aca95/resource/e2896bbc-528f-4e2b-94a0-f76c15ddf6ae/download/lfs_data_tables.pdf"><img src="https://wordpress-758785-2566078.cloudwaysapps.com/wp-content/uploads/2024/12/B.C-Unemployment-Rates-by-Age-October-2024-4-1024x731.png" alt="" class="wp-image-4534"/></a><figcaption class="wp-element-caption">BC Unemployment Rates by Age - the average rate of 5.8% is forecasted to drop to 5.2% in 2025 and 4% in 2026 (Source: Government of BC)</figcaption></figure>

<p>Lower immigration may ease housing pressures but risks labor shortages in sectors that rely on immigrant workers, potentially slowing economic growth. While this could lead to lower interest rates and boost investment, office space demand remains uncertain due to hybrid work trends and potential skilled labor gaps. Employers should remain flexible in their space strategies to adapt to these shifts.&nbsp;</p>

<h2 class="wp-block-heading">Local Factors&nbsp;</h2>

<h3 class="wp-block-heading"><em>Urban Planning &amp; Transit Oriented Development&nbsp; </em>&nbsp;</h3>

<p>Earlier this year, PCI Developments and Low Tide Properties submitted a <a href="https://www.shapeyourcity.ca/455-565-great-northern-way-and-1850-thornton-st">rezoning application</a> for a major development planned around the future Great Northern Way-Emily Carr Station, part of the Broadway Subway Extension. The proposal includes:</p>

core/list-item

core/list

List

List item

<li>Twin 35-storey rental towers with four-storey podiums (offering 548 rental units, 20% at below-market rates)</li>

<li>A 20-storey mixed-use office tower with a four-storey podium (featuring 269,497 sq. ft of office space and 10,762 sq. ft of retail)</li>

<li>A one-storey building with 22,917 sq. ft of retail space integrated with the station.</li>

<ul class="wp-block-list"><li>Twin 35-storey rental towers with four-storey podiums (offering 548 rental units, 20% at below-market rates)</li><li>A 20-storey mixed-use office tower with a four-storey podium (featuring 269,497 sq. ft of office space and 10,762 sq. ft of retail)</li><li>A one-storey building with 22,917 sq. ft of retail space integrated with the station.</li></ul>

<figure class="wp-block-image size-large"><img src="https://wordpress-758785-2566078.cloudwaysapps.com/wp-content/uploads/2024/12/Screenshot-2024-12-09-145744-1024x605.png" alt="" class="wp-image-4518"/><figcaption class="wp-element-caption">View from Great Northern Way looking North into new public space and West into adjacent plaza (Rendering: Perkins&amp;Will)</figcaption></figure>

<p>Designed by <a href="https://perkinswill.com/studio/vancouver/">Perkins &amp; Will</a>—this project marks the third to integrate directly with a future Broadway Subway station. PCI's portfolio also includes the <a href="https://pci-group.com/projects/the-stories-at-south-granville-station/">40-storey tower atop South Granville Station</a> under construction and the 30-storey tower at Arbutus Station, developed in partnership with TransLink (<a href="https://www.shapeyourcity.ca/2096-w-broadway-and-2560-2576-arbutus-st">approved earlier this year</a>).</p>

<p>Beyond individual projects, Vancouver’s Broadway Plan and city-wide efforts to densify neighborhoods near transit hubs are reshaping the skyline while addressing housing shortages and reducing reliance on car-centric infrastructure. These initiatives align with global trends emphasizing walkable, transit-accessible urban environments.</p>

<h3 class="wp-block-heading"><em>Tourism Growth&nbsp;</em></h3>

<p>Tourism in Vancouver saw a rebound in April 2024, with Downtown hotel occupancy reaching 82.8%-90.2% from April to September, driven by a surge in cruise passengers departing from Canada Place Terminal (<a href="https://www.destinationbc.ca/tourism-industry-dashboard/" target="_blank" rel="noreferrer noopener"><em>Destination BC Stats</em></a><em> </em>and <em><a href="https://www.biv.com/news/hospitality-marketing-tourism/bc-tourism-economy-blooms-as-spring-arrives-8710943">Business in Vancouver</a></em>). With major events like the 2026 FIFA World Cup and Invictus Games Vancouver Whistler 2025 on the horizon, Vancouver’s hotel demand is expected to surpass supply, despite 1,400 rooms under development. As a result, some developers are converting office projects into hotels due to high office vacancy rates and low pre-leasing (<a href="https://canada.constructconnect.com/dcn/news/economic/2024/07/office-space-glut-leading-to-hotel-pods-room-and-suite-conversions" target="_blank" rel="noreferrer noopener"><em>Construct Connect</em></a>).&nbsp;</p>

<figure class="wp-block-image size-large"><img src="https://wordpress-758785-2566078.cloudwaysapps.com/wp-content/uploads/2024/12/TSwift-v1.1-1024x768.png" alt="" class="wp-image-4521"/><figcaption class="wp-element-caption">Taylor Swift Vancouver Eras Tour is projected to generate $157 million in economic benefits for the city. (Photo: Floorspace)</figcaption></figure>

<p>Taylor Swift’s Eras Tour further underscored the economic impact of high-profile events, with its Vancouver shows projected to generate $157 million in economic benefits, including $27 million in tax revenue. Such events highlight the critical role of tourism in sustaining Vancouver’s CRE market.</p>

<h2 class="wp-block-heading">Global and Political Context&nbsp;</h2>

<h3 class="wp-block-heading"><em>Shifting U.S.-Canada Relations</em></h3>

<p>After a closely contested race with Kamala Harris, Donald Trump was elected the 47th President of the United States in the November 2024 election. Among his first actions, Trump pledged to implement a 25% tariff on imports from Canada and Mexico, effective immediately upon his return to office. This policy is anticipated to cause significant economic disruption in Canada by mid-2025 (<a href="https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/"><em>Canadian Chamber of Commerce</em></a>). Additionally, Trump's plans to address undocumented immigrants in the U.S. may lead to increased migration attempts to Canada. His proposed policies—encompassing taxation, foreign and defense strategies, exchange rates, and environmental regulations—are expected to create ripple effects for Canadian businesses<em> </em>(<em><a href="https://www.pwc.com/ca/en/research-insights/united-states-election/business-in-canada-in-the-second-trump-era.html">PwC Canada</a></em>).</p>

<p>Canada’s Federal election, set for late 2025, provides an opportunity to adjust economic strategies in response. In BC, a judicial recount confirmed a narrow majority for the BC NDP government, adding to political uncertainty. This cautious environment is slowing decisions on business expansion and commercial leasing in Vancouver.</p>

<h3 class="wp-block-heading"><em>Geopolitical Instability&nbsp;</em></h3>

<p>Conflicts like the Russia-Ukraine war and Israel-Palestinian tensions continue to create global economic ripple effects. From volatile commodity prices to disrupted supply chains, these factors underline the importance of agility in investment and operational strategies.&nbsp;</p>

<h2 class="wp-block-heading">Opportunities Amid Change&nbsp;</h2>

<p>Despite challenges, Vancouver’s CRE market offers opportunities for those who can adapt to changing conditions. With inflation stabilizing, interest rates easing, and urban planning initiatives unlocking new potential, stakeholders can position themselves to thrive.&nbsp;</p>

<p><strong>At <a href="https://www.floorspace.ca/">Floorspace</a>, we provide expert insights and tailored solutions to help you navigate this evolving market. Contact us today to explore how these trends impact your business and uncover opportunities ahead.</strong>&nbsp;</p>

<p><strong>Stay Updated: </strong>Follow us on LinkedIn and Instagram or subscribe to our newsletter for the latest market insights.</p>

<p><em>The information above was obtained from sources deemed reliable; however, its accuracy cannot be guaranteed.&nbsp;</em></p>

Macroeconomic Trends Shaping Vancouver’s Commercial Real Estate Market

About the Author

Arshia Puri
linkedin email

Join our Mailing List

Macroeconomic Trends Shaping Vancouver’s Commercial Real Estate Market

Related Posts

First Movers Q3 2024 – 10 Notable Office Lease Transactions

Inside Vancouver’s Marine Building

About the Author

Arshia Purilinkedinemail

Join our Mailing List

Arshia Puri
linkedin email