Real Estate Opportunities in a Downturn (Part 2): Strategic Actions for Developers and Landlords
Part two of our Real Estate Opportunities in a Downturn series exploring tax-efficient strategies for property owners. Click here for Part 1.
Key Takeaways
- Higher interest rates and tighter underwriting standards require proactive debt management.
- Increased vacancy may create opportunities for renovations and asset repositioning.
- Lower property valuations can support estate freezes and succession planning strategies.
- Careful cash flow forecasting is critical in a slower leasing environment.
- Portfolio reviews may reveal opportunities for disposition, redevelopment, or acquisition.
- Tenant retention strategies help preserve occupancy during uncertain market conditions.
As we move through 2026, the real estate sector in BC and across Canada continues to adjust to higher interest rates, slower economic growth, increased construction costs, and shifting demand patterns. Demand has softened across both the condo presale and rental markets, where slower population growth and affordability pressures have impacted pricing and occupancy. While inflation has eased from its peak, borrowing costs remain elevated compared to pre-pandemic levels, creating pressure on refinancing, development timelines, and cash flow.
In this environment, discipline matters. Developers and landlords need to actively assess asset performance and valuation, liquidity requirements and covenant exposure to ensure stability and allow for flexibility.
What Should Developers and Landlords Prioritize During an Economic Downturn?
Optimizing Debt Structure in a Higher-Rate Environment
With interest rates still higher than pre-pandemic levels, debt management has become a top priority. Many borrowers face upcoming renewals at materially higher rates, and lenders have tightened underwriting standards. Owners need to revisit financing terms, evaluate consolidation or refinancing options, and assess how rising rates and stricter covenants may affect future liquidity and debt service coverage.
Preparation ensures you are negotiating from a position of strength. Updated covenant calculations, interest-rate sensitivity analysis, and refinancing models should be completed prior to engaging with lenders. As lenders have become more cautious, lender-ready financial packages demonstrating financial stability are increasingly important.
Renovations and Asset Modernization to Maintain Competitiveness
Vacancy rates have increased, most notably for office, older multi-family properties in need of modernization, and select retail segments. While higher vacancies create short-term revenue pressure, they also provide an opportunity to complete renovations with less revenue disruption. Upgrading units, improving energy efficiency, or repositioning dated assets can help you remain competitive and better capture demand when conditions stabilize. Several local governments offer incentives to support these upgrades.
Before committing to a course of action, evaluate the financial impact of planned renovations, forecast cash flows under various occupancy and rent scenarios, and determine the appropriate tax treatment for expenditures.
Estate Freezes and Succession Planning During Stabilized or Softened Valuations
After several years of rapid price growth, many real estate segments have stabilized or softened. Lower current valuations create a favorable environment for estate freezes, corporate restructuring, and intergenerational planning. Freezing values at today’s levels can cap the current generation’s tax burden at these lower values, while allowing future appreciation to accrue to the next generation.
Refer to our first edition of this series focusing on these tax planning opportunities.
Cash Flow Management in a Slower Leasing Environment
Economic growth remains modest, and many landlords are experiencing slower leasing activity and pressure on operating margins. Careful cash flow management is essential, particularly for owners facing higher interest and financing costs or delayed lease-up timelines.
Operating expenses should be reviewed line by line, and cash flows should be forecast under multiple scenarios to identify any areas where spending can be optimized without compromising asset quality. Adjustments to service contracts, insurance policies, utilities, or property management arrangements may yield meaningful savings. On the revenue side, reassessing rental rates, incentives, and lease terms can help maintain occupancy and competitiveness.
Re-Evaluating Portfolio Performance and Capital Allocation
Segments of the real estate market are performing differently in the current conditions. Industrial demand remains relatively strong, while certain parts of the office market continue to face elevated vacancy. Retail conditions vary widely depending on location and tenant mix. Differences will continue during any recovery.
This is a practical time to review which assets meet expectations, which require reinvestment, and which no longer align with your long-term goals. As described above, some properties may benefit from modernization. Others may be candidates for disposition where returns are no longer adequate, required capital can be deployed more effectively elsewhere, or the outlook for that asset class remains weak.
Where liquidity is available, downturns often create acquisition opportunities, including distressed assets or situations where vendors are facing leverage or renewal pressures.
Hold-vs-sell models, asset-level profitability assessments, long-term return projections, and tax-efficient structuring plans for both acquisitions and dispositions should form part of any analysis. If you are considering redevelopment or repositioning, it’s important to assess feasibility by modelling projected costs, future income potential, tax implications, and cash flow requirements.
Tenant Retention Strategies
Tenant stability becomes especially valuable during an economic downturn. Maintaining open and proactive communication with tenants can help you identify challenges early and work collaboratively toward solutions. In some cases, offering flexible lease terms, renewal incentives, or tailored arrangements can prevent turnover and preserve occupancy. Strong tenant relationships reduce vacancy risk and position your properties for smoother operations, even when market conditions are uncertain.
Positioning for Recovery
The current real estate landscape presents both challenges and opportunities. Higher borrowing costs, shifting demand patterns, increased construction costs, and cautious lenders require thoughtful planning. Groups that actively manage debt, liquidity, and asset performance will be better positioned when conditions improve.
Considering Your Real Estate Strategy?
Refinancing, portfolio repositioning, and succession planning require disciplined analysis and forward-looking modelling. Our team works closely with developers and landlords to navigate complex market conditions.
Learn more about our Real Estate and Construction services or Speak with a Smythe advisor to discuss your situation.
