Q2 Real Insights | Inflation pressures, investment shifts and emerging growth markets

Canada's economic landscape in Q2 2026 reflects challenges we're all experiencing. Geopolitical tensions and trade uncertainty have created what economists call a "technical recession," yet positive signs are emerging—job creation is rebounding, unemployment is falling, and exports are climbing despite tariff volatility. While oil-rich provinces like Alberta and Saskatchewan are thriving, the real estate sector is adapting creatively, converting unsold condos into affordable housing and embracing "missing middle" developments.

Get a quick snapshot of key takeaways this quarter:

Read on to understand how Canada’s cities and sectors are responding to the pressures and possibilities of 2026:

Economy

Conflict in the Middle East and the closure of the Strait of Hormuz increased oil prices, contributing to inflation and a technical recession in Canada during the first half of 2026. Despite weaker GDP and less disposable income, household spending rose 1.5%. Inflation reached 2.8%, while exports, employment, and GDP forecasts improved, supported by stronger trade conditions and labor market gains.

Tariff uncertainty persists while CUSMA negotiations proceed, creating risks for manufacturing-dependent provinces such as Ontario, Quebec, and British Columbia. The deal cannot expire unless the three parties (Canada, the U.S., and Mexico) cannot reach unanimous agreement to extend or renegotiate it annually. Six months’ notice must be given to end the trilateral arrangement.

Oil-exporting provinces are benefiting from higher energy prices. The Bank of Canada has maintained its policy rate at 2.25%, expecting inflation near 3% before returning to target, making additional rate cuts unlikely in 2026.

Investment Activity

Unpredictable trade prospects continue to delay investment decisions, but federal initiatives to diversify exports, accelerate infrastructure projects, and reduce interprovincial barriers are expected to improve investment activity later in 2026. Private investors remain dominant in commercial real estate, although institutional and public buyers have increased participation as interest rates stabilize and market confidence improves.

Multi-family investors are increasingly prioritizing reliable income over property appreciation. Older apartment buildings are attracting more investment because high construction costs have reduced the affordability of new developments. Newer projects face slower rent growth and higher vacancy rates, making legacy properties more appealing due to their stronger cash flow potential and lower acquisition costs.

Property owners are emphasizing tenant retention and rapid lease-up strategies through incentives such as rent discounts, free parking, referral rewards, and flexible lease terms. Marketing has shifted toward authentic social media content on TikTok, Instagram, YouTube, and Facebook, highlighting neighbourhood qualities like walkability, transit access, schools, and green spaces rather than building amenities.

Key Trends

Cities experiencing strong population growth, including Calgary, Edmonton, Ottawa, and Winnipeg, offer attractive opportunities for developers and investors. These markets feature multi-residential capitalization rates of 6% or higher and strong cash-on-cash returns. Edmonton stands out with 14% returns, supported by migration trends, housing demand, and relatively affordable development conditions.

Missing middle housing starts increased 44% between 2023 and 2024 due to zoning reforms and reduced regulatory barriers. Growth was strongest in Edmonton and Calgary, where land availability supported expansion. Ottawa and Montreal also contributed significantly, while Vancouver and Toronto lagged, with Vancouver experiencing a substantial decline in missing middle housing construction.

High land and development costs are encouraging partnerships among governments, non-profits, and private developers. Programs such as public land transfers, community land trusts, density bonuses, and the Affordable Housing Innovation Fund aim to expand affordable housing supply. These collaborative approaches reduce development costs and support the creation of long-term affordable rental housing.

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