'Investing in the face of those headwinds gives us a real opportunity today' says Hazelview CIO Michael Tsourounis
Despite near-term turbulence in Canada’s housing market, ranging from immigration slowdowns to a glut of unsold condo inventory, Hazelview Investments’ chief investment officer believes the current conditions present a rare window for institutional investors to step into real estate development.
He sees the current turbulence in Canada’s housing market as a catalyst for long-term investment. While population growth has slowed due to shifting immigration policies, particularly restrictions on non-permanent residents along with the condo market absorbing a wave of COVID-era supply, he argues that the current climate offers rare advantages to build at a lower cost.
“Interestingly enough, some of those non-permanent residents where the government's hoping that people will be leaving is not happening as fast as they thought it would have and as a result, there's a little bit of short-term headwinds there,” explained Michael Tsourounis, who's also a managing partner at the real estate investment firm.
“The condo market obviously has had a lot of noise in and around of what's happened with that slow down… So, it’s kind of a perfect storm. You have immigration pulling back, you have some slowness and softness in the economy with a lot of geopolitical things, notably what's going on with the US and tariffs along with some economic slowdown.”
Yet, Tsourounis believes these same conditions have created a more favourable cost environment for real estate. Construction pricing has moderated, skilled labor is more available, and developers can access higher-quality trades at better rates, he explained, adding that today’s market offers “a better basis,” and in real estate, “what you paid to build is going to be forever.”
He emphasized that this isn’t a moment for short-term plays because real estate development takes years to complete. He argues that institutional investors and pension funds, who have a long-term outlook should move now, before the market fully recovers and costs begin rising again.
When conditions feel stable and predictable, that’s typically when demand drives up prices for labor and materials. Waiting for certainty, in his view, often means paying more.
“There is some discomfort when you're investing into a market with some short-term headwinds… [but] investing in the face of those headwinds, gives us a real opportunity today,” he said, underscoring that Canada’s long-term housing demand will be driven by immigration, which the country will increasingly rely on to support economic and population growth.
While investor sentiment may be cooler now, Tsourounis sees a silver lining: the weaker market is creating cost advantages for developers. Lower rents, softer demand, and more cautious capital flows are all contributing to a more affordable construction environment. That, he argues, is precisely when savvy investors should move.
He also acknowledged that current market conditions as offering strong potential for long-term value creation in real estate, particularly in multifamily development. With construction costs down and labor more accessible, developers can build more efficiently today than they could in recent years.
While the future direction of cap rates remains uncertain, Tsourounis argues that today’s market still offers solid fundamentals. If cap rates rise without a corresponding increase in rents, new supply will be difficult to add. But those already building now, while costs are contained, will be better positioned when rents do climb.
He also underscored the resilience of multifamily assets compared to other real estate sectors. With many tenants spread across a building, income is more stable, and turnover risk is more manageable.
But like anything, investors need to also be mindful of the associated risks. Tsourounis identifies policy risk as one of the most persistent and unpredictable challenges facing real estate investors in Canada. Developers are often forced to make long-term commitments without knowing whether regulatory frameworks will remain consistent.
While he believes policy risk has eased somewhat compared to two or three years ago, it remains a concern that can’t be controlled at the execution level. Notably, other uncontrollable risks include shifts in interest rates or changes to immigration policy, both of which can impact the demand side of housing.
Still, he maintains that housing offers one of the most compelling long-term, risk-adjusted return profiles across real estate asset classes because “there’s stable demand coming back and that's going to be kind of rooted in population growth through immigration,” he said, underscoring a structural demographic tailwind.
While real estate as an asset class “has been beat up pretty heavily” in recent years - from office to retail to industrial - he also believes the downturn has created the conditions for a supply squeeze as the development pipeline has stalled and restarting it won’t be immediate.
Tsourounis also expects the market to become increasingly segmented or what he calls a “bifurcation” across product types. Regardless of asset class, the properties that succeed will be the ones that meet evolving tenant expectations: high-quality, well-managed, well-located, and sustainable buildings.
After all, “a good product will do really well and that's where tenants and customers will want to be,” he said.
Ultimately, Tsourounis believes the biggest factor influencing the future of Canadian real estate and the economy more broadly is whether the country can reignite meaningful, sustainable growth.
“We need that economic engine of Canada to really start picking up. We need Canada to be a place where people think there’s a lot of opportunity,” he said, emphasizing that includes drawing in foreign investment, unlocking domestic growth, and reducing friction in major industries like energy and construction.
Without these factors, the longer-term fundamentals won’t be enough to sustain momentum, he added.
