Note: This report focuses on cap rates and market trends for the Greater Vancouver area. The Chilliwack commercial real estate market tends to follow similar trends due to regional economic influences, investor activity, and tenant demand. While specific local variations exist, the insights provided here are generally applicable to Chilliwack as well.

Industrial, Retail, and Office Breakdown

Cap Rate Trends (Q1 2025)

Industrial

• Cap rates remain stable with slight upward movement due to a modest increase in vacancy across some submarkets.

• Investor demand remains strong, especially for strata and single-tenant assets with long-term leases.

Retail

• Tier I and grocery-anchored retail remain in high demand with minimal cap rate movement.

• Secondary street front retail is seeing softening valuations as tenant turnover rises in less dense areas.

Office

• Office cap rates continue to rise, particularly in Class B and C assets where vacancy pressure and leasing incentives are more pronounced.

• Class A downtown remains attractive to risk-tolerant investors but trades at a modestly higher cap rate than one year ago.

Buyer and Seller Activity (Q1 2025)

Who’s Buying?

• Institutional groups are still focused on prime industrial and essential retail assets.

• Private capital is increasingly targeting distressed office or value-add retail opportunities.

Who’s Selling?

• Owners of dated suburban office buildings are more active in divesting.

• Retail landlords in tertiary areas are looking to exit amid lease-up challenges.

Cap Rates vs. Bank of Canada Interest Rates

The Bank of Canada reduced its overnight rate to 4.5% in Q1 2025, down from 4.75% in Q4 2024. Despite this modest easing in monetary policy, cap rates continue to edge upward, reflecting a market that is increasingly influenced by local leasing fundamentals and tenant risk rather than central bank moves alone.

Rising cap rates suggest that investor caution remains high, especially in asset classes facing structural headwinds such as office. While lower borrowing costs offer some relief, underwriting remains conservative, and buyers are seeking greater risk-adjusted returns in a higher vacancy environment.

The gap between cap rates and interest rates remains compressed, continuing to pressure valuations and contributing to slower transaction velocity. Investors are focusing on stable income-producing assets and scenarios with clear upside potential through repositioning or lease-up.

Conclusion

The Q1 2025 cap rate analysis shows that investors continue to prioritize industrial and prime retail assets, while office remains under pressure. Even with reduced interest rates, cap rates are moving upward, highlighting the influence of local demand, leasing fundamentals, and tenant quality on valuation.

Expect cautious optimism from buyers in the first half of 2025. Attractive opportunities will exist for well-located properties with stable tenancy and upside potential in repositioning underperforming assets.

Disclosure

This report is based on information obtained from multiple third-party sources, including Colliers, CBRE, Cushman & Wakefield, Avison Young, and Altus Group. The data presented is intended for informational purposes only and should not be solely relied upon for investment decisions. Cap rates and market conditions may vary based on specific locations, asset conditions, and economic factors. For personalized investment advice, consult with a commercial real estate professional.

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