What to Know About Canadian Real Estate Stocks for 2025

Canadian real estate stocks are showing signs of recovery, but not all stocks are a good investment. Here’s what you should know about them.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

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Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published February 25, 2025 4:40 pm EST

Canada’s real estate sector could see a tepid recovery in 2025 after two years of steep correction triggered by high interest rates and unaffordable house prices. Is now a good time to invest in Canadian real estate stocks? If yes, which stocks present a better investing opportunity? To answer these questions, we have to understand the current real estate scenario.

shoppers in an indoor mall — Source: Getty Images

Canada’s real estate stocks with high leverage

In the last two years, many REITs saw a steep dip in their unit prices as the fair market value of their property portfolio fell. Moreover, rising interest rates made it difficult for REITs with significant leverage to pay high-interest expenses. In response, several REITs slashed their distributions.

Northwest Healthcare REIT (TSX:NWH.UN) slashed its annual distributions and suspended its dividend reinvestment plans in September 2023 due to high debt. Such drastic measures pulled the REIT’s stock price down 68.5% between September 2023 and February 2024. The REIT has been selling its properties to reduce debt and using interest rate cuts to refinance debt at lower interest rates.

As of September 30, 2024, the REIT owns and manages interests in 186 hospitals, medical office buildings, and healthcare facilities in Europe, North America, Brazil, and Australasia. This is lower than 219 properties a year ago. Its debt is now 49.2% of its gross book value, down from 51.9% in 2023. The debt reduction is still in progress but the improvement in fundamentals is visible.

Although Northwest Healthcare REIT’s net asset value (NAV) is $9.02, the unit is trading at $4.96. The unit price is trading at a discount as the REIT continues to sell properties, which could reduce its NAV. The slashing of the distribution has helped the REIT reduce its payout ratio from 122% to 99%. While the REIT could see more downside amid global economic weakness, it is a good investment for its 7.3% yield.

Canada’s commercial real estate stocks

Commercial REITs were the worst hit as they could not revive their occupancy rate to the pre-pandemic level. True North Commercial REIT (TSX: TNT.UN) first slashed dividends and then stopped paying them altogether in November 2023 to pay its interest expenses. The REIT continues to see falling net income with no signs of resuming distributions.

The REIT continued to sell properties and has reduced its portfolio to 40 properties as of September 30, 2024, from 44 a year ago. Its leverage is 61% of its gross book value, which is pretty high. Even though the real estate market is seeing recovery, it is better to stay away from commercial property REITs for the time being.

Canada’s retail real estate stocks

The sunrise segment in real estate is retail REITs, especially those in necessity-based retail centres. SmartCentres REIT (TSX: SRU.UN) and Choice Properties REIT saw a strong recovery because of the high exposure to tenants like Walmart and Loblaw.

As the largest retail REIT in Canada, SmartCentres has one of the longest dividend-paying histories of 23 years among REITs. It has sustained its distribution by renting retail stores to grocers and other necessity retailers. The REIT also develops mixed-use properties to enhance the value of its stores. Its property portfolio puts its NAV at $34.64 but the REIT is trading at a 27% discount of $25.42 as the real estate sector has only begun a recovery rally. SmartCenters REIT is an attractive investment opportunity to lock in a 7.3% yield.

Residential REITs

The Canadian government introduced various measures to improve housing affordability for first-time home buyers and discourage underused housing. Moreover, the Bank of Canada has accelerated interest rate cuts to make mortgages affordable. This could see an uptick in the sale of affordable houses and increase house prices moderately after a steep decline.

However, rental activity could be tepid as the government’s reduction in immigration targets could reduce the demand for rental properties in metros. Hence, it is better to steer clear of the residential REITs.

Investor takeaway

Canadian real estate stocks are set to ride the recovery rally after almost three years of correction. However, the recovery speed might differ across provinces and property types. It is better to invest only in REITs that have lower leverage and a distribution payout ratio below 100%.