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.
