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

Q3 2025 Cap Rate Trends

Cap rates across all major asset classes held relatively steady this quarter, signaling a market that’s stabilizing after two years of upward movement. Industrial remains the most resilient, retail performance is split between essential and secondary assets, and office continues to face leasing and valuation challenges.

Industrial

• Cap rates held steady in the mid-5% range, reflecting the sector’s ongoing stability.

• Demand remains strong for single-tenant and strata industrial, especially with long-term leases.

• National availability rose to ~6.2%, but investors remain focused on well-located, essential assets.

• Some premium assets saw minor cap rate compression due to competitive buyer interest.

Retail

• Grocery-anchored retail held firm in the mid-5% range, backed by essential retail demand.

• Secondary retail softened, with cap rates rising to the high-5% to mid-6% range.

• Vacancy and tenant turnover increased, prompting landlords to offer aggressive leasing incentives.

• The sector is split: strong performance in Tier I; pressure on yields in Tier II locations.

Office

• Office cap rates remain highest among asset classes, averaging mid-6% to 7% in suburban areas.

• Even Class A offices are trading at higher yields; downtown AA assets reached ~6.8%.

• Flight-to-quality persists as tenants favor modern, efficient spaces over older inventory.

• Valuations are under pressure, and office recovery is expected to trail other sectors.

Buyer and Seller Activity

Investor activity in Q3 2025 reflected cautious optimism. Private buyers and owner-users drove most acquisitions, especially in secondary markets like Chilliwack where yields are more attractive and financing conditions have modestly improved. Industrial strata units and grocery-anchored retail remained top targets for these groups. Institutional investors, meanwhile, stayed selective — focusing on stabilized, income-producing assets — and continued listing non-core properties, particularly in the office and secondary retail segments.

On the sell side, pricing expectations have started to shift. Owners of well-leased, high-quality assets generally held firm, expecting conditions to improve in the coming quarters. In contrast, sellers of challenged properties, like partially vacant offices, have shown increased flexibility, with some accepting modest discounts to close deals. While activity remains measured overall, both buyers and sellers are re-engaging as interest rate trends improve and market confidence slowly returns.

Cap Rates vs. Bank of Canada Interest Rates

In Q3 2025, the Bank of Canada lowered its overnight rate to 2.50%—its eighth cut since June 2024—amid softening inflation and rising unemployment, easing borrowing conditions. The 10-year bond yield followed suit, falling to around 3.2% by quarter-end. Despite this, cap rates across most asset classes held steady, suggesting the market has adjusted to higher financing costs. Pricing is now driven more by asset fundamentals than rate shifts, and while further easing could lead to modest cap rate compression in 2026, the current tone remains stable and cautious.

Conclusion

The Q3 2025 cap rate outlook points to a market in transition, with rates stabilizing after two years of increases. Investors continue to favor resilient assets like industrial and grocery-anchored retail, while office remains under pressure. As borrowing costs ease and confidence slowly returns, the groundwork is being laid for a selective recovery—driven by private capital and focused on well-located, income-secure properties.

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.

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

In Q2 2025, cap rates across industrial, retail, and office asset classes remained relatively stable, following upward movement throughout 2023 and early 2024.

Industrial

• ·Industrial properties continued to lead in stability, with average yields ranging from 5.2% to 5.7%, supported by resilient tenant demand and limited new supply.

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

Retail

• ·Retail cap rates held mostly steady for Tier I and grocery-anchored properties, while softening was observed in secondary locations and high-turnover corridors.

• Owners of secondary assets are facing higher vacancy and offering leasing incentives to retain tenants, which is impacting valuations.

Office

• Office cap rates remain elevated, especially for older suburban buildings and Class B/C assets.

• Leasing incentives persisting and tenant demand lagging.

• Class A properties in core markets continue to attract interest but trade at higher yields than in previous years.

Buyer and Seller Activity

Investor activity in Q2 reflected a continuation of the cautious posture established earlier in the year. Private capital and owner-users led acquisition activity, particularly in secondary markets like Chilliwack, where pricing has become more attractive relative to core Metro Vancouver. Owner-occupiers, especially in the industrial sector, made up a significant portion of buyers.

Institutional buyers remained selective, focusing on stabilized essential retail and well-leased industrial. Meanwhile, many developers and REITs have moved to list non-core assets or exit underperforming properties, particularly in the office and secondary retail sectors.

Cap Rates vs. Bank of Canada Interest Rates

The Bank of Canada held its overnight rate at 2.75% in Q2 2025, after cutting from a peak of 5.0% in mid-2024. This easing has provided some relief to investors, although the positive impact on cap rates has been modest so far. Buyers remain conservative in underwriting, with greater attention paid to leasing risk and tenant covenant strength.

As illustrated in the graph below, the relationship between cap rates and the BoC interest rate shows signs of stabilization. Cap rates are no longer rising aggressively but are not compressing significantly either, indicating that market pricing is now being driven more by local fundamentals and less by central bank policy.

Conclusion

The Q2 2025 cap rate analysis shows a market in transition. Investors continue to prioritize industrial and prime retail assets, while office remains under pressure. Even with reduced interest rates, cap rates remain relatively high, especially in sectors facing leasing headwinds. The market is showing signs of stabilization, and opportunities exist for well-located properties with stable tenancy or repositioning potential.

As the second half of 2025 progresses, look for increased activity from private buyers and a possible return of institutional capital if interest rates continue to decline and economic sentiment improves.

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.

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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