Avison Young Called CRE Stability Before Trump's Tariffs Changed the Equation

The office tower on Bay Street that traded hands in Q1 2026 at a 6.8% cap rate would have fetched 5.2% eighteen months earlier. The buyer paid less. The seller took the hit. And for the first time since the pandemic reshuffled every assumption about work and space, the transaction closed without either party renegotiating twice or walking away at the last minute.

That's what stability looks like when you've been living through chaos.

Avison Young's mid-year 2026 report documents something the industry has been whispering about for months: Canadian commercial real estate has found a floor. Vacancy rates in industrial have normalized to roughly 4% nationally, up from the sub-2% frenzy of 2022 but nowhere near crisis. Office markets remain bifurcated, Class A space in downtown Toronto and Vancouver still commands tenant interest, while aging suburban inventory sits dark, but cap rates have largely plateaued. Buyers and sellers are no longer staring at each other across a six-figure valuation gap with no deal language that can close it. Transactions are happening again, even if the velocity is lower than anyone would prefer.

The stability thesis rests on two structural shifts. First, interest rates stopped being a moving target. The Bank of Canada's tightening cycle, which ran from early 2023 through mid-2024, finally gave way to a holding pattern that let lenders and borrowers price risk with some confidence. Second, the hybrid work model is no longer a temporary disruption everyone's waiting to reverse. It's furniture now. Landlords have stopped pretending Class B buildings will fill back up and started planning adaptive reuse or negotiating lease flexibility that reflects the actual world tenants are operating in.

The Tariff Variable Nobody Priced In

On July 8, 2026, the Trump administration announced a new round of tariffs targeting steel, aluminum, and select manufactured goods crossing the northern border. The details are still being finalized, but the target list includes materials used in everything from warehouse construction to HVAC systems. Canada sends over 75% of its exports to the U.S., and any friction in that flow doesn't stay abstract for long. It shows up in the rent roll of every industrial building within 50 kilometers of a border crossing.

If the tariffs stick, the replacement cost of new construction climbs. That could, paradoxically, increase the value of existing inventory, standing stock becomes more attractive when building new gets more expensive. But it also introduces a lag problem: most industrial leases in Canada run three to seven years, and tenants whose supply chains depend on cross-border movement can't reprice their operations overnight. The impact won't show up in Q3 data. It'll show up in the lease renewal conversations happening in Q1 2027, when a logistics tenant in Brampton has to decide whether the new tariff burden justifies staying put or relocating closer to the customer base south of the border.

Wait-and-See Is the New Strategy

Transaction velocity in Canadian CRE is down roughly 20% from the 2019 baseline, not because distress is widespread but because nobody wants to be the first mover in a repricing environment. REITs are holding. Pension funds are reallocating to decarbonization-friendly assets but moving slowly. Private equity that rushed into industrial during the pandemic is now sitting on portfolios that pencil fine at current valuations but would get marked down hard if tariffs push vacancy rates up another 200 basis points.

The mid-year stability Avison Young documented is real. It's also conditional. The Trump tariff announcement is not yet a market event, it's a calendar event. The market event comes when the first major tenant decides the math doesn't work anymore.