Canadian real estate leaders must decide how to act in 2025 as further interest rate cuts loom, stricter immigration policies take effect and the federal government’s 10-year bonds are up.
Real estate leaders view these challenges through a lens of volatility, uncertainty, complexity and ambiguity (VUCA). To contend with these disruptions, companies must balance long-term strategic clarity with adaptive agility — a mix of deliberate and emergent strategies that requires diligence and a willingness to respond quickly to new developments.
Deliberate strategies, as defined by the strategist Michael Porter, are planned and intentional actions aligned with a set vision. Conversely, the Canadian academic Henry Mintzberg’s concept of emergent strategies evolve organically in response to unforeseen opportunities and challenges.
Blending these approaches accounts for economic shifts, policy changes and market disruptions while aligning with broader industry discourse on resilience and innovation. Implementing these strategies thoughtfully can resonate across industries despite their inherent differences, according to Karl Moore, an associate professor of strategy and organization at McGill University.
Here is how Canadian real-estate leaders can re-strategize and approach the volatility, uncertainty, complexity and ambiguity in the industry this year.
Volatility is the new normal
There is no normal — or a return to it — in today’s economic landscape. While deliberate planning is essential to prepare for rate cuts, the volatile timing and scale of economic and political disruptions necessitate emergent flexibility to adapt borrowing strategies on the fly.
Canada’s new cap on temporary residents also signals an economic rebalancing that deliberate diversification strategies must address, while emergent tactics should be used to react to immediate shifts in housing demand.
While developers welcomed the tax changes in 2024 that also included a goods and services tax (GST) reprieve, it’s likely not enough to offset rising development charges and weather approval delays.
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In Toronto, the development charges for condominiums versus purpose-built rentals diverged sharply in 2022 and continues to widen, according to data from the city. It costs $80,690 for a two-bedroom condo as of May 2024 compared to $48,290 for a two-bedroom rental.
In 2009, the development charge fee for either was approximately $8,000—a stark contrast to what the market looks like today.
Condo pre-sales declined from 70 per cent to far below 50 per cent in 2024 as rate hikes and Canada’s ban on foreign buyers created market volatility. For condo developers, pairing deliberate and emergent strategies can set themselves up to succeed.
These operators can think long-term by diversifying their portfolios with rental properties instead of doubling down on their existing condo strategy. Developers should emphasize executing a collaborative advantage by focusing on finding a trusted partner to respond to immediate market conditions and opportunities that make rentals more attractive.
Developers should remain mindful that the condo market could pick up in 2026 with swings in policy, emphasizing the importance of diversifying strategies and staying agile.
Companies must recraft and reposition their unique value propositions by focusing on operational excellence — a hallmark of deliberate strategy. Developers should reassess visibility and rethink value drivers such as revenue and investment efficiencies.
Leveraging technology, streamlining operations and building internal capacity are key to resilience, while strategic outsourcing can further boost efficiency. Companies should also adopt emergent solutions to stabilize operations and seize opportunities as they arise.
Opportunities despite uncertainty
Lending conditions in Canada are expected to become less restrictive—but uncertainty remains a challenge in the office sector and in land and residential condo markets, creating financial constraints.
While industry leaders may rely on deliberate fundraising narratives to secure capital—the capital that investors committed to funds but have yet to deploy—are the lowest they’ve been in six years.
Data from Preqin suggests a sustained appetite for opportunistic and value-add real estate investments in Canada, signalling that dry powder is still poised for deployment. Acquiring unsold residential inventory at a discount has emerged as a strategic response to softening condo market demand, helping developers navigate market uncertainties. This highlights the need for emergent strategies that seize on unexpected opportunities.
The sharp rise in interest rates pushed numerous investors to the sidelines. Fundraisers must rethink their unique selling proposition, pair strategic clarity with adaptability and craft compelling narratives that resonate with investors to secure capital. By leveraging unique strengths and tailoring investor approaches, they can position themselves as resilient in shifting markets.
It’s complicated — money has a price
The era of easy money is over. Complexity in the real estate market demands a nuanced combination of deliberate and emergent approaches, with a focus on leveraging unique value propositions.
The high cost of capital means real estate leaders must thoughtfully implement cost-cutting measures and reassess distributions to preserve capital.
Developers can differentiate themselves by leveraging vertical integration. This strategy allows developers to assert more control over their operations, speed up the development process and create a more compelling and distinct offering for investors and stakeholders. Larger, well capitalized developers typically have the means to achieve this.
Some developers are bringing critical stages of the value chain in-house. Using an internal team of architects and engineers and construction professionals ensures control of the upstream stages, and bringing leasing and property management in-house exercises control over the downstream aspects.
This approach reflects a deliberate strategy by enabling firms to control more of the value chain, enhancing efficiencies and distinguishing themselves in a competitive market.
Canadian funds looking to attract international investors must also navigate global climate and social responsibility standards. Uneven compliance burdens and challenges like Scope 3 emissions reporting leave smaller companies grappling with double materiality.
Aligning with global benchmarks remains a hurdle, but Canadian companies that reframe their value proposition and adapt will stay ahead and win investor confidence. Emergent strategies like this should allow leaders to thrive by balancing local-market realities with meeting international standards.
Ambiguity highlights need for disruption
Canada’s construction sector faces mounting ambiguity as the risk shifts from inflation to unemployment. More than 500,000 workers are needed by 2030 and the talent pipeline is weakened by retirements, challenges recruiting young talent and other systemic issues.
Reducing youth underemployment and unemployment could increase Canada’s real gross domestic product (GDP) by $18.5 billion by 2034, a study commissioned by King’s Trust Canada suggests. But the construction sector struggles to attract talent despite youth unemployment hitting a 12-year high of 14.5 per cent in 2024.
Rising costs, supply chain disruptions and stagnant housing starts in October illustrate the sector’s inability to meet growing demand.
A shift in mindset is needed to address this ambiguity.
External industry disruptors are bringing these changes to Canadian real estate, compelling established players to either adapt or risk obsolescence.
These strategies combine cost efficiencies through economies of scope, adaptability and scalability with optionality, offering a pragmatic approach to managing uncertainties in labor, materials and shifting policies.
Ambiguity is particularly pronounced when it comes to market dynamics; this uncertainty highlights the need for coordination between industry players and government.
During a November interview with Smart Density at the Kehilla Residential Programme, Ana Bailão, Toronto’s former deputy mayor and head of affordable housing and public affairs, said forming strong partnerships, stacking government programs and staying nimble are integral to navigating ambiguity in affordable housing.
Leaders in the construction sector should embrace ambiguity as an opportunity for innovation and reinvention. Success hinges on the ability to collaborate creatively, anticipate the unknown and build frameworks that adapt to evolving demands.
