CANADA – QUÉBEC Trends and Developments Contributed by: Eleonora Eusepi and Bruno Burrogano, BCF Business Law LLP
The Québec real estate market is going through a period of adjustment after several years of unusually strong activity driven by low interest rates and popula - tion growth. While the pace has slowed compared to recent highs, this shift should not be mistaken for a sign of market weakness. Instead, it reflects a return to more normal operating conditions, with higher bor - rowing costs, stricter underwriting, and investors tak - ing a more selective, disciplined approach to capital deployment. Although transaction volumes have moderated across asset classes, market fundamentals remain stable in Greater Montréal and in several key secondary mar - kets throughout the province. Cities such as Québec City, Laval, Longueuil, and Gatineau continue to attract investor interest, supported steady employ - ment, ongoing population growth, and a tight hous - ing supply. Investor confidence is gradually improving as pricing adjusts to higher financing costs, creating selective opportunities in the multi-residential, indus - trial, and retail segments. These continue to offer income stability and long-term demand characteris - tics that institutional and private investors seek in a more cautious capital environment. That said, the outlook is not without challenges, and investors remain mindful of external risks that could slow or disrupt the current market trends. Recent US tariffs have raised the cost of certain construc - tion materials and cross-border goods, while ongoing geopolitical tensions have created added uncertainty across markets and global supply chains. Rising costs for essentials such as oil have had profound effects, increasing transportation, heating and construction expenses throughout the real estate sector. In this context, market participants are balancing two priori - ties: taking advantage of emerging opportunities as conditions stabilise, and carefully managing exposure to macroeconomic and geopolitical risks that remain elevated. Economic Factors The Bank of Canada’s monetary tightening cycle, which pushed interest rates substantially higher from its pandemic-era lows, significantly increased borrow - ing costs across the economy and placed pressure on capitalisation rates throughout the real estate sector.
The effects of this tightening were most evident in the multi-residential and office segments, where valua - tions are particularly sensitive to interest rate move - ments and financing availability. Higher debt service costs compressed investment returns and, in some cases, rendered previously feasible development pro - jects economically unviable, contributing to a slow - down in new projects and construction starts. More recently, rate cuts introduced by the Bank of Canada have started to loosen financing conditions and support a gradual return of buyer confidence. That said, expectations have shifted, with current forecasts suggesting the Bank is unlikely to continue cutting rates in a steady, predictable sequence. This more measured approach reflects ongoing inflation risks and a challenging geopolitical backdrop, includ - ing cost pressures linked to US tariffs on Canadian goods. As a result, market participants are generally not expecting a return to the ultra low-rate environ - ment of the past and are adjusting financing assump - tions and project economics accordingly. Construction costs remain elevated and continue to weigh on new development. Labour shortages per - sist across the construction trades, reflecting both demographic factors and the competitive demand for skilled workers across infrastructure and development sectors. Regulatory compliance obligations (includ - ing permitting, inspection, and licensing requirements) add time and cost to development timelines. The cost of materials has been materially affected by the tariffs imposed on certain goods by the US, affecting prod - ucts including steel, aluminium and lumber that are critical inputs for residential and commercial construc - tion. These combined pressures continue to challenge the feasibility of affordable housing and purpose-built rental projects, which typically operate on thinner mar - gins and are more sensitive to cost escalation. Sector-Specific Trends Residential and multi-residential Demand for purpose-built rental housing remains strong across Québec, driven, primarily, by contin - ued high levels of immigration, ongoing affordability constraints that limit access to home ownership, and a chronic shortage of purpose-built rental supply rela - tive to demand. Institutional and private developers
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