Five Key Impacts of U.S. Tariffs on Canada’s Commercial Real Estate Industry
As U.S. President Donald Trump prepares to implement sweeping new reciprocal tariffs on April 2—a day he has proclaimed as “Liberation Day” for American trade—experts are analyzing potential effects across various Canadian economic sectors.
Despite Prime Minister Carney’s “extremely productive call” with Trump on Friday, tensions remain high after Carney stated on Thursday that the U.S. is “no longer a reliable partner” and future Canadian governments will have a “different relationship” with their southern neighbor.
Adam Jacobs, head of research at Colliers Canada, outlined five key impacts these tariff threats are having on Canada’s commercial real estate industry in an interview with BNNBloomberg.ca. While acknowledging significant challenges, Jacobs also highlighted several silver linings that could partially insulate the sector.
The Canadian Dollar Effect
With more than 75 percent of Canadian exports going to the U.S., tariff threats have significantly impacted the Canadian dollar, which traded around 0.70 cents U.S. on Friday. According to Jacobs, this presents a mixed blessing for commercial real estate.
“The weaker the dollar gets, it causes us some problems in terms of inflation, the cost of materials,” he explained. “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 Rate Uncertainty
The Bank of Canada cut its key policy rate by 25 basis points to 2.75 percent on March 12, signaling that tariff uncertainty influenced this decision. For real estate, this creates a complex environment.
“We’re one of those industries that weirdly benefits from economic bad news,” Jacobs noted, explaining that lower borrowing costs can benefit commercial real estate since the industry requires “so much debt.”
However, uncertainty around further cuts is “stalling things” in the market. “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 on the path back down to normal. But nobody knows what normal is.”
Industrial Real Estate Vulnerability
The industrial real estate sector has “carried” commercial real estate during the last four to five years, according to Jacobs. This segment has been “kind of unstoppable,” benefiting from population growth, the pandemic-driven e-commerce boom, and same-day delivery expansion.
However, this sector is also closely tied to export-dependent industries. “The industrial real estate sector is tied to things like agriculture, automotive resources, oil and more, which are all big export industries,” Jacobs explained. “That’s why we’re keeping our eye out… I think that’s the downside that we’re most worried about.”
Regional Disparities
Tariff impacts will likely be unevenly distributed across Canada. “There’s certain areas that probably aren’t going to feel much impact from tariffs at all,” Jacobs said. “Whereas southwestern Ontario, because of auto manufacturing, because of auto parts and assembly, that’s probably going to take, unfortunately, an outsized hit… as well as areas that are maybe more dependent on oil refining, aluminum manufacturing, that sort of thing.”
Deal Uncertainty
The climate of uncertainty itself has become a significant factor, with many potential real estate deals stalling as investors wait for clarity.
Silver Linings
Despite these challenges, Jacobs identified several potential positives:
- Canadian retailers, manufacturers, and food producers could benefit from “buy Canada” sentiment
- The hospitality industry might see increased domestic travel, benefiting hotels and restaurants
- Infrastructure improvements could emerge as a response to tariffs, benefiting 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 noted. If Canada responds with infrastructure investments, it could “be very beneficial to real estate.”
Perhaps most importantly, Jacobs emphasized that real estate’s inherently local nature provides some insulation. “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. “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.”
U.S. President Donald Trump’s reciprocal tariffs on trading partners are set to take effect on April 2. Follow comprehensive coverage on CTVNews.ca, CP24.com, and BNNBloomberg.ca.