Canada’s 2025 Budget, tabled on November 4 amid renewed trade uncertainty with the U.S., emphasizes economic resilience and productivity. The budget marks a fundamental shift from operational spending to capital investment, positioning 2025–2030 as a major cycle of construction and development. For commercial real estate, it unlocks transformative opportunities through $450 billion in capital spending across infrastructure, housing, defence, R&D, industrial modernization, trade diversification, and strategic tariff response.
The projected $78.3 billion deficit (2.5% of GDP) reflects a strategic bet that capital investments will spur private sector participation and enhance Canada’s competitiveness. To catalyse private sector participation, agencies such as the Major Projects Office and Build Canada Homes are tasked with accelerating adoption and implementation, while prioritizing local suppliers.
The budget's Productivity Super-deduction represents the most significant tax incentive for commercial real estate development in years. The federal government suggests this investment will reduce the marginal effective tax rate by more than 2%, positioning Canada below the OECD average. A key component of this program that will directly impact industrial real estate is the Immediate expensing for manufacturing & processing buildings.
The financials are compelling. According to PWC, a $50 million manufacturing facility can now generate immediate tax deductions rather than depreciating over 25+ years, potentially saving $13-15 million in present-value tax costs, assuming corporate rates around 26%. This directly addresses Canada's competitiveness gap with the U.S. and incentivizes "reshoring" of production capacity.
Another driver of industrial real estate development, the $5 billion Trade Diversification Corridors Fund, targets infrastructure doubling non-U.S. exports by 2035. Eligible projects include port expansions, railway infrastructure, and airport development, all of which catalyze private logistics and warehouse development in surrounding corridors. This includes investments in the Great Lakes-St. Lawrence Region, ports in northeastern Québec like enhancing the Port of Saguenay's capacity to build a second wharf, rail lines in Alberta, port and rail infrastructure on the West Coast, and more. Canada Border Service Agency will also work with Public Safety, Transport Canada, and Global Affairs Canada to identify additional ports for container import and export designation, particularly in the Great Lakes-St Lawrence Region, like Québec City and Hamilton.
Budget 2025 marks a historic shift in Canada’s defence posture to rebuild, rearm, and reinvest in the Canadian Armed Forces (CAF). The budget’s unprecedented allocation immediately meets NATO’s 2% of GDP target and sets a trajectory toward 5% by 2035. Defence spending is a catalyst of jobs, as well as infrastructure development and investment. For example, industrial land near bases and ports, secure office clusters, and specialized digital infrastructure could see heightened activity.
The budget allocates $6.6 billion over five years specifically for the Defence Industrial Strategy aimed at strengthening Canada’s domestic defence production capacity and competitiveness, while reducing red tape and accelerating procurement. The Buy Canadian Policy will clearly prioritize Canadian Defence suppliers and enable faster access to federal contracts.
This budget’s investment in dual-use technologies (military and civilian applications) could create opportunities for engineering, software development and consulting companies. Additionally, cyber defence spending ($10.9B) will drive demand from contractors and cybersecurity firms and defence-related agencies. Major allocations for digital upgrades and cyber defence and AI integration is expected to drive demand for Sensitive Compartmented Information Facility (SCIF) office space, as well as secure data centres.
Build Canada Homes, the federal housing agency launched in September 2025, receives $13 billion in initial funding over five years. Its mandate is to double annual housing construction from 280,000 to 430,000–480,000 units, aligning with Canada Mortgage and Housing Corporation (CMHC) estimates that 4.8 million new homes are needed by 2035 to restore affordability to 2019 levels.
This cash injection positions purpose-built rental developers and industrialized construction firms as key beneficiaries. The emphasis on modular and factory-built methods is expected to drive demand for housing component manufacturing facilities, creating a new industrial real estate subsector.
To address structural challenges in the construction sector, such as a shortage of skilled trades and limited innovation, Build Canada Homes promotes modern construction methods like modular, factory-built, and mass timber. These approaches aim to cut timelines by 50%, reduce costs by 20%, and enable year-round building.
The agency consolidates previously fragmented programs and focuses on non-market housing, essentially affordable, transitional, and supportive units. It will also partner with private developers to deliver middle-class affordable housing. The $1.5 billion Canada Rental Protection Fund to preserve affordable rental stock from conversion to luxury or condominium use is now administered under Build Canada Homes.
For the ownership market, the GST exemption for first-time buyers removes federal sales tax on new homes up to $1 million, with declining rebates to $1.5 million. This represents an average of $26,832 savings per buyer, according to the Parliamentary Budget Officer. However, the exemption excludes repeat buyers and investors, who represent the majority of new home purchases.
In terms of financing, Canada Mortgage Bond issuance increases from $60 billion to $80 billion annually starting in 2026, exclusively for multi-unit housing financing. This $20 billion expansion provides lower-cost mortgage funding for lenders, directly supporting purpose-built rental construction. The government continues its $30 billion annual CMB purchase program, ensuring market liquidity for multifamily financing.
On the demand-side of housing, we also have certainty on the federal government’s immigration targets for the next three years. Notable is that these targets aim for less immigration than what was observed over the previous five years.
FEDERAL GOVERNMENT'S IMMIGRATION TARGETS FOR THE NEXT THREE YEARS
Temporary Workers
2026
230,000
2027
220,000
2028
220,000
Students
2026
155,000
2027
150,000
2028
150,000
Total Temporary Residents
2026
385,000
2027
370,000
2028
370,000
Economic Immigration
2026
239,800
2027
244,700
2028
244,700
Family Reunification
2026
84,000
2027
81,000
2028
81,000
Refugees
2026
56,000
2027
54,300
2028
54,300
Total Permanent Residents
2026
380,000
2027
380,000
2028
380,000
For context, total annual permanent residents added between 2024 and 2025 (counted year-over-year in July) was 435,421 and peaked during the pandemic at 493,236 between 2021 and 2022. Total inflow of temporary residents between 2024 and 2025 (counted year-over-year in July) was 676,160 and peaked at 1,251,653 from 2023 to 2024.
The $51 billion Build Communities Strong Fund represents a rebranding and expansion of federal infrastructure programs with three distinct streams affecting real estate development.
BUILD COMMUNITY STRONG PROGRAM'S THREE STREAMS
Build Communities Strong – Community Stream
$27.8B
Build Communities Strong – Direct Delivery Stream
$6.0B
Build Communities Strong – Provincial/Territorial Stream
$17.2B
Build Communities Strong – Total
$27.8B$51.0B + $3.0B/yr ongoing
The program allocates $17.2 billion to provinces over 10 years ($1.72 billion annually), $6 billion for direct delivery ($600 million annually), and $27.8 billion for community stream ($2.78 billion annually rising to $3 billion ongoing).
The infrastructure investment of $115 billion over five years addresses the single most critical constraint for land development: servicing capacity. Water, wastewater, roads, and transit infrastructure have limited greenfield development in high-growth regions, with municipalities unable to keep pace with servicing needs. Water and wastewater capacity has been a binding constraint in high-growth markets across the country’s cities and suburbs; and a critical bottleneck for industrial parks, office complexes, and residential/mixed-use developments.
The Provincial/Territorial Stream allocates $17.2 billion for housing-enabling infrastructure—water, wastewater, roads, and transit. Provinces must cost-match federal funding and ensure municipalities "substantially reduce" development charges to access these funds. Development charge reduction remains contentious. While the Liberal campaign promised a 50% cut in development charges, Budget 2025 delivers only a framework requiring provincial negotiations to pressure municipalities, and no details around execution timelines. For developers, this means the promised cost reduction may take years to materialize, if at all, limiting near-term project economics improvements.
The Direct Delivery Stream program ($6 billion over 10 years) is dedicated to funding regionally significant projects, large building retrofits, and climate adaptation infrastructure, while the Community Stream ($27.8 billion) provides flexible municipal funding with no federal approval for individual projects—essentially formula-based transfers that cities can deploy for local priorities.
To a lesser extent than multifamily and industrial, the budget also supports certain sectors. For instance, investors, regardless of the asset class, will note the proposed increase in the capital gains inclusion rate has been scrapped. Data centers and AI infrastructure receive the most significant alternative asset support through $926 million for Sovereign AI infrastructure and explicit authorization for the Canada Infrastructure Bank to invest in AI projects. While not explicitly a CRE program, the infrastructure and power availability requirements create substantial development opportunities. On the other hand, this development will accentuate pressure on land availability and existing energy grids.
At last, we cannot overlook the federal government’s targets to reduce the number of its public servants by 40,000, which will negatively impact the office market in Ottawa. That said, the previous government added over 100,000 new federal public service jobs since 2019. Should all public sector employees return to the office on a full-time basis, demand for office space in Ottawa would recover. The nation’s capital should also benefit from the presence of Department of National Defence’s headquarters and its ecosystem of suppliers and consultants.
Budget 2025 prioritizes capital investment over operational spending, setting the stage for five years of ambitious industrialization. The government plans $450 billion for infrastructure, housing, defense, R&D, and trade diversification to address unemployment, weak productivity, tariffs, supply chain risks, and housing affordability. For commercial real estate, opportunities include land intensification along investment corridors and hubs for manufacturing, defense, AI, energy, and logistics. Urban development could accelerate if new agencies deliver on plans to expand housing-enabling services and unlock public land for mixed-use communities, requiring alignment among stakeholders. Fiscal anchors—balanced budgets by 2028–29 and a declining deficit-to-GDP ratio—introduce discipline that may limit future program growth but provide confidence that announced spending will proceed as planned. This stability is designed to attract private investment, essential for sustaining growth and repaying debt. If infrastructure investments roll out as planned, they will deliver a lasting boost to Canada’s economy over the next five years and beyond. While immediate impacts on real estate remain limited, measures to support Canadian businesses, diversify supply chains beyond the U.S., and accelerate development of natural and energy resources should help revive an economy showing signs of fatigue. Sustained growth will, in turn, underpin demand, even if indirectly.
Useful links:
https://www.canada.ca/en/department-finance/news/2025/11/government-of-canada-releases-budget-2025-canada-strong.html
https://www.pm.gc.ca/en/news/news-releases/2025/11/05/prime-minister-mark-carney-shares-budget-2025-plan-build-communities
https://budget.canada.ca/2025/report-rapport/overview-apercu-en.html
https://www.dwpv.com/insights/2025/federal-budget-2025
https://canada.constructconnect.com/dcn/news/government/2025/11/budget-2025-a-deeper-dive-into-nation-building-projects-strategies
https://www.theglobeandmail.com/politics/article-federal-budget-highlights-2025-carney-trade-defence/
https://www.pwc.com/ca/en/services/tax/budgets/2025/2025-federal-budget-analysis.html
https://www.cbc.ca/news/politics/budget-highlights-9.6966595
https://www.canadianmortgagetrends.com/2025/11/budget-2025-doubles-down-on-housing-strategy-but-adds-few-new-measures/
https://www.canadianmortgagetrends.com/2025/03/carney-pledges-to-cut-gst-for-first-time-buyers-of-homes-under-1m/
- Immediate (already operational): Build Canada Homes launched September 2025; Major Projects Office operational August 2025; GST first-time buyer rebate effective May 27, 2025; Productivity super-deduction effective November 4, 2025
- Near-term (2026-27): Build Communities Strong Fund launches; provincial/territorial negotiations on development charges begin; Critical Minerals Sovereign Fund operational; first projects from Direct Delivery stream announced
- Medium-term (2027-29): Major infrastructure projects transition from approval to construction; Contrecœur terminal opens 2029; housing construction pace increases toward doubling target; federal operating budget achieves balance (2028-29 target)
- Long-term (2030+): Alto high-speed rail construction begins (2029 target); trade diversification reaches doubling target (2035); full housing supply gap closure
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Marie-France Benoit, MBA
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- Principal, Director Market Intelligence, Canada
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- Research
- Market Intelligence
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