A distinctly Western Canadian view of the year in commercial real estate
financing
I am writing to express my sincere appreciation to you for doing business
with First National this year. With your support, we surpassed $50 billion
in commercial mortgages, solidifying our place as Canada’s leading
lender to the multi-unit property industry.
In addition to thanking you, it seems appropriate to include a few
observations on the state of the market itself as the clock runs down on the
year.
A year of contrasts
Activity in 2024 was bifurcated. In the first half of the year, overall real
estate investment activity was relatively muted as interest rates remained in
restrictive territory. In the second half, market sentiment began to change on
the back of Bank of Canada interest rate cuts. As a result, the year closes
out on an upbeat note with a resurgence in trading activity.
In B.C., large private investors and REITs are active in buying newer
assets, while not-for-profit sector participants including those associated
with the B.C. Rental Protection Fund continue to acquire existing multi-unit
properties in support of their affordable housing mandates. In new
construction, we continue to see the development community pivot from condos
to rental apartment projects, a move dictated by economics.
In Alberta, momentum is strong with rental rates still climbing in Edmonton
and up in Calgary, although to a lesser degree. A rent-control-free
environment is clearly a powerful incentive for new investment. Absorption
in those two cities is also positive, which serves to encourage both trading
activity and new construction.
Across all regions, vacancies continue to remain low.
An active year for CMHC
Programs offered by the National Housing Agency have served Canada well,
particularly during this period of high interest rates. Without MLI Select
in particular, many current multi-unit residential housing projects would
have been shelved.
While we continue to strongly believe in the value of these incentive
programs, qualifying for them is becoming more given the changes made on
June 19th and again on November 15th. Under separate cover, my colleagues
have done a good job of explaining these program revisions as they happened,
so I will reiterate that if you are interested, it is critically important
for you to speak to First National in our role as a CMHC Approved Lender.
More than ever, it’s necessary to position your ask of CMHC with
compelling data that will address their more restrictive requirements. This
is where First National’s expertise will make a significant difference
for you.
An early look at 2025
The bond market upon which mortgage rates are based appears to have already
priced in incremental rate cuts. While it is possible that more monetary
stimulus is on its way, there is no way to accurately predict such moves,
which are dictated by the Bank of Canada’s expert view of economic
fundamentals. Better, in our view, is hedging interest rate risk, which is
why many First National clients continue to do so with our Early Rate Lock
program.
We also need to keep a sharp eye out on government policies. 2025 is a
federal election year, while B.C. is now awaiting policy prescriptions from
its new provincial government. That’s to say nothing of municipal
government initiatives, none of which we can predict.
What we can say with conviction is that Alberta and B.C. continue to need
new rental supply to fill the gap between demand and supply – even
with lower targeted levels of immigration.
Thank you and best wishes
2025 will come with a new set of opportunities and challenges as well as
plans for continued progress at First National in our quest to provide you
with Better Lending. As always, we believe working closely with you to
provide ongoing advice and support is the best guarantee we have of rising
to the occasion and ensuring mutual success.
On behalf of my colleagues in Western Canada, I wish you the very best of
the season and a healthy, prosperous new year.
Yours sincerely,
John Lucas
Vice President, Commercial Financing
British Columbia and Alberta