Commercial Real Estate Investing in Canada 2025

Updated March 2025 • 11 min read

Commercial real estate (CRE) encompasses office buildings, retail centres, industrial warehouses, and mixed-use developments. It offers larger deal sizes, longer lease terms, and professional tenants — but also requires more capital, expertise, and tolerance for market-specific cycles than residential investing.

Types of Commercial Real Estate in Canada

Industrial

Warehouses, distribution centres, light manufacturing, and flex space. Industrial has been the strongest performing CRE sector in Canada over the past decade, driven by e-commerce growth and supply chain reshoring. Vacancy rates in major markets hit near-historic lows through 2021–2022 before moderating. Cap rates: 4.5–6.5% in major markets.

Retail

From large regional malls to neighbourhood strip plazas and single-tenant NNN (triple net) retail. Grocery-anchored and necessity-based retail (medical, dental, childcare) has significantly outperformed fashion-anchored malls. Cap rates: 5–8% depending on tenancy and location.

Office

Downtown Class A towers, suburban office parks, and medical office buildings. The office sector faces structural headwinds from remote and hybrid work. Downtown vacancy in many Canadian cities (including Calgary historically) remains elevated. Medical office is a defensive sub-sector with consistent demand.

Multi-Family (5+ Units)

Apartment buildings with 5+ units are typically financed and valued as commercial real estate, though they're residentially occupied. Strong fundamentals: rental demand, immigration, housing shortage. Typically the most accessible entry point into CRE for investors transitioning from residential.

Mixed-Use

Retail ground floor with residential or office above. Common in urban intensification areas. Complexity of managing both uses; often valued using blended methodologies.

Commercial Real Estate Financing in Canada

Commercial mortgages differ significantly from residential:

• Down payment: Typically 25–35% (vs. 20% for residential investment)
• Qualification: Based primarily on the property's Debt Service Coverage Ratio (DSCR) — NOI must exceed mortgage payments by at least 1.2–1.3x
• Recourse vs. non-recourse: Most Canadian commercial mortgages are full recourse to the borrower personally
• Amortization: Often 20–25 years with 5-year terms; balloon payments at term end require refinancing
• Lenders: Big 6 banks, credit unions, life insurance companies, CMHC MLI Select (for multi-residential), and private lenders

CMHC Multi-Unit Residential Financing

CMHC's MLI Select program provides insured financing for apartment buildings (5+ units) with significantly better terms than conventional commercial mortgages: lower interest rates, longer amortizations (up to 50 years for certain qualifying properties), and higher LTVs. Properties must meet affordability, energy efficiency, or accessibility criteria to qualify at the best tiers.

Commercial Leases vs. Residential Leases

Commercial leases are fundamentally different from residential:

• Negotiated privately — no government-mandated lease forms or rent guidelines
• NNN (triple net) leases: tenant pays operating costs including property taxes, insurance, maintenance
• Gross leases: landlord pays most operating costs
• Lease terms: typically 3–10 years with renewal options
• Personal guarantees often required from business owners/tenants
• No provincial rent control equivalent (with exceptions for some residential-over-commercial)

Evaluating Commercial Properties

Commercial properties are valued on income. Key metrics:

• Cap Rate: NOI ÷ Value. Compare to market cap rates for similar assets.
• DSCR: NOI ÷ Annual Debt Service. Should be 1.25x minimum.
• Weighted Average Lease Expiry (WALE): Average remaining lease term weighted by rental income. Longer WALE = more income certainty.
• Occupancy rate: Current and historical vacancy patterns
• Tenant quality: Creditworthiness of tenants; national vs. local tenants; lease guarantees

Getting Started in Commercial Real Estate

Most investors transition from residential to commercial — building capital, expertise, and a track record before taking on larger deals. Common pathways:

• Start with a small mixed-use building (residential + commercial unit below)
• Upgrade from fourplex to small apartment building (6–12 units)
• Purchase a single-tenant NNN retail building with a national tenant
• Partner with an experienced CRE investor or syndicate before buying alone

Capital Gains and Depreciation Recapture

Commercial real estate generates significant Capital Cost Allowance (CCA/depreciation) benefits during ownership. On sale, CCA taken is "recaptured" — added back to income at ordinary rates. Net capital gains (beyond original purchase price) are subject to capital gains tax. For large commercial gains, the proposed 2/3 inclusion rate on gains over $250,000 is a material consideration. Consult a tax professional specializing in CRE before significant transactions.