Real Estate Rebound: Retail and Senior Housing Portfolios Lead the REIT Recovery
After four turbulent years, it looks like real estate investment trusts (REITs) are making a comeback, with investments in senior housing, industrial and retail assets proving especially lucrative.
After the pandemic, REIT stocks fell as interest rates climbed, rents dropped, the threat of online shopping hurt retail valuations, and downtown office space saw record vacancies.
But now that the interest rate environment has stabilized and various asset classes are proving resilient, REITs are bouncing back.
REITs are companies that own or finance a range of income-producing real estate properties and many are publicly traded on a stock exchange.
“REITs are a great way of gauging general sentiment on the street towards an asset class,” said Benjamin Haythornthwaite, director of market analytics at CoStar, a commercial real estate information company.
“In its simplest form, it comes down to what the value trajectory is for that asset class, and right now industrial and retail are carrying strong returns so far.”
While REIT performance is improving there is still “some ways to go” to return to historical norms for investor returns, experts said.
“Historically, you could say, pre-2022 we would expect eight to 10 per cent compound annual growth,” said Michael McNabb, portfolio manager at Purpose Investments Inc.
“Right now, just due to the last four years of underperformance, it looks like you’re sitting more on five or six per cent (of growth). But I do think we are going to get back to that historical norm.”
What’s on the upswing
“The strongest performing sector in Canada has been the senior sector,” said McNabb. “Demand is outstripping supply.”
Chartwell Retirement Residences, Sienna Senior Living and Extendicare are posting “very strong” earnings, he added.
As Canada’s population ages, housing for seniors is seen as lucrative with ample growth expected in the sector for the next several years, experts said.
Granite REIT and Dream Industrial REIT have posted strong returns for industrial real estate with warehousing and logistics, said Adam Jacobs, head of research at Colliers Canada. These REITs are also globally diversified with properties in Europe and the U.S.
“I think there was fear that tariffs and the trade war with the U.S. was going to crush the sector but we haven’t seen that,” he said.
During the pandemic, when more people worked from home, distribution and delivery centres were in high demand and many industrial buildings were being constructed as they’re “the easiest and fastest asset class to build,” McNabb said.
While there was an oversupply of industrial warehousing coming out of the pandemic, that supply is being absorbed, pushing rents higher, especially as more long-term leases come up for renewal where rents can see on average of 30 to 60 per cent increases based on where the pricing was when the original lease was signed, he added.
Grocery-anchored retails with tenants such as Loblaws, Metro, Shoppers Drug Mart, Petsmart and Dollarama have proved to be resilient in the face of economic uncertainty, as these stores offer essential items that residents need and are secure long-term tenants, Jacobs said.
Because very little retail space is being built, there’s always demand for what’s on the market, he added.
What’s dragging down performance
The value appreciation outlook for multi-family real estate is weak as rents continue to drop.
“When lowering rents, the outlook is quite negative for value growth,” said Haythornthwaite.
The average asking rents in Canada have fallen back to levels seen three years ago, as April marked the 19th consecutive year-over-year decline, according to a Rentals.ca and Urbanation report.
In a market downturn, some REITs are going private.
In January, Minto Group took its apartment-focused real estate investment trust private in a $2.3-billion deal with Crestpoint Real Estate Investments as Canada’s rental market faces pressure from rising supply and lower immigration.
Leasing for office space has improved, with AI and tech leading, allowing the sector to stabilize and work toward recovery.
According to commercial real estate firm CBRE, Toronto drove office leasing momentum nationally in the first quarter of 2026, which dropped the city’s downtown vacancy rate to 14.4 per cent compared to 18.3 per cent during the same period a year ago.
But at the end of last year, when some office assets sold at around $500 per square foot, “there was a huge drop off for returns for office REITs,” said Haythornthwaite.
“When you actually look at those net asset values, they were probably a little bit ahead of what the true market is showing in transactions,” he said, meaning it’s likely the valuations of the assets were stronger than what they actually sold for.
Ultimately, REITs are still playing catch up with the rest of the stock market.
“Last year wasn’t awful for REITs, it was up eight to nine per cent, so not horrible, but when you compare that to the overall market in Canada, which was up 30 plus per cent, it wasn’t that great,” McNabb said.
“Now this year, we’re kind of on pace with the market, which is nice to see.”
This article was first reported by The Star
