Investor Education

How Interest Rates Affect REITs in Canada: What Industrial Real Estate Investors Should Know

Published November 4, 2026 · 17 min read

REITs in Canada are affected by interest rates, but the relationship is much more complicated than “rates down, REITs up.” Interest rates can change borrowing costs, property valuations, acquisition pricing, construction activity and investor expectations. At the same time, the performance of the actual properties still depends on rent, occupancy, tenant demand, operating expenses and how much debt the REIT carries.

For investors looking at an industrial REIT in Canada, this distinction matters.

A strong property does not suddenly become a bad building because the Bank of Canada raises its policy rate.

But if the owner borrowed heavily to buy it, must refinance at a much higher rate, loses tenants or paid too much for the property, higher rates can expose those weaknesses quickly.

The reverse is also true.

Lower rates may reduce financing costs and support real estate valuations, but they cannot fix poor acquisitions, weak locations or buildings that tenants do not want.

Understanding the connection between interest rates and real estate starts with understanding how a REIT actually makes money.

Where Canadian Interest Rates Stand in 2026

Canada has experienced a significant interest-rate cycle over the past several years.

The Bank of Canada began raising rates in March 2022. By July 2023, its target for the overnight rate had reached 5.00%.

The Bank held rates at restrictive levels before beginning to cut in June 2024, when it reduced the policy rate to 4.75%.

As of November 4, 2026, the Bank of Canada's target overnight rate is 2.50%. On October 28, 2026, the Bank announced a 25-basis-point increase from 2.25%, effective October 29, following a period at 2.25% that began in October 2025.

Before the October 2026 increase, Canadian commercial real estate had moved through three very different conditions in a relatively short period:

• exceptionally low borrowing costs;
• rapid monetary tightening;
• and a subsequent period of declining and stabilizing rates.

For real estate investors, that period has provided a useful reminder:

Debt structure matters.

Source: Bank of Canada, October 28, 2026 rate announcement.

Why Interest Rates Matter to a REIT

A real estate investment trust typically owns properties partly with investor equity and partly with debt.

That debt may include mortgages, credit facilities or other financing.

When interest rates change, the cost of that financing can change too.

Imagine a simplified industrial property generating $1 million in annual net operating income.

If financing costs increase by $200,000 after refinancing, less cash remains after debt costs.

The building has not changed.

The tenants may still occupy the same space.

Rent may still arrive every month.

But the economics available to the property owner have changed.

That is why an investor assessing a private REIT in Canada should look beyond the current Bank of Canada rate and ask:

• How much debt does the REIT carry?
• When does that debt mature?
• How much has a fixed rate versus a variable rate?
• At what rates could upcoming debt be refinanced?
• How much cash flow remains after interest expenses?
• How much financial flexibility does management maintain?

Those questions tell you far more than simply knowing that interest rates went up or down.

1. Higher Rates Can Increase Borrowing Costs

The most direct effect of higher interest rates is financing.

When borrowing costs increase, new mortgages typically become more expensive.

Properties with existing fixed-rate debt may not feel the effect immediately.

The issue often appears when debt matures.

Suppose an industrial property was financed several years ago at 3%.

If that debt eventually renews at 5%, annual interest expense could rise substantially.

That can reduce cash available for:

• distributions;
• capital improvements;
• additional acquisitions;
• debt repayment; and
• reserves.

This is one reason investors should pay attention to a REIT's debt maturity schedule, rather than simply looking at its current interest expense.

A REIT with staggered maturities can face a very different situation from one with a large portion of its debt coming due during the same year.

2. Interest Rates Can Influence Property Values

Interest rates also affect how investors value commercial real estate.

One commonly used measure is the capitalization rate, or cap rate.

A cap rate compares a property's net operating income with its value.

The simplified formula is:

If an industrial building produces $500,000 of annual NOI and sells for $10 million, the cap rate is 5%.

If buyers begin requiring a 6% cap rate for the same income, the implied value drops to approximately $8.33 million.

Nothing necessarily changed inside the building.

The change comes from how investors price the income.

Interest rates are one factor that can influence required returns and cap rates.

When low-risk investments such as government bonds offer higher yields, real estate investors may also demand a higher return to compensate for property, tenant, financing and liquidity risks.

But cap rates do not mechanically follow the Bank of Canada policy rate.

Local supply and demand, rental growth, tenant quality, property condition and the amount of capital chasing an asset class also influence pricing.

What Is Happening to Canadian Cap Rates Now?

By mid-2026, Canadian commercial real estate pricing had begun showing signs of stabilization.

CBRE's Q2 2026 Canadian Cap Rates & Investment Insights report found that national average cap rates compressed quarter-over-quarter across most property categories.

Industrial cap rates saw a modest decrease.

That matters because the Bank of Canada's policy rate had already dropped significantly from its 5% peak.

But it would be misleading to say lower interest rates alone caused the change.

Capital availability, investor demand, property fundamentals and expectations about future economic conditions also affect cap rates.

This is why serious real estate analysis rarely comes down to one number.

3. Higher Rates Can Create Acquisition Opportunities

Higher financing costs can create problems for some property owners.

They can also change acquisition pricing.

Consider an owner who purchased an industrial building using significant short-term debt.

If that debt must be refinanced at a much higher cost, the owner may decide to sell rather than inject additional equity.

At the same time, some buyers may reduce the prices they are willing to pay because their own borrowing costs have increased.

That can create a gap between sellers' expectations and buyers' underwriting.

For disciplined buyers with access to capital, periods of financing pressure can create acquisition opportunities.

But lower prices do not automatically mean good deals.

Investors still need to assess:

• current rent;
• market rent;
• occupancy;
• tenant credit;
• lease expirations;
• required repairs;
• environmental issues;
• financing;
• location;
• replacement cost; and
• expected cash flow.

The purchase price matters.

The underlying building matters more.

4. Lower Rates Can Increase Competition for Property

Falling interest rates can work in the opposite direction.

When financing becomes less expensive, more buyers may find acquisitions financially workable.

That can increase competition for quality commercial properties.

In some cases, additional capital entering the market can push property prices higher and compress cap rates.

Canadian commercial real estate investment activity has already increased.

CBRE reported $16.2 billion of Canadian commercial real estate investment during Q2 2026, the highest quarterly total since early 2022.

Industrial real estate accounted for approximately $4.2 billion, which CBRE said was well above the trailing three-year quarterly average.

That does not mean every industrial property is becoming more expensive.

It shows that substantial capital remains interested in the sector.

For a REIT management team, periods of stronger competition make acquisition discipline even more important.

Growing a portfolio for the sake of becoming larger can destroy value if properties are purchased at prices that do not support their economics.

5. Interest Rates Affect Development Too

Interest rates do not only affect existing buildings.

They also influence construction.

Industrial developments often require financing for:

• land;
• construction;
• materials;
• labour;
• infrastructure;
• leasing costs; and
• carrying costs before the building becomes fully occupied.

When financing becomes expensive, some proposed developments no longer meet their required returns.

Developers may delay or cancel projects.

Over time, reduced construction can limit the amount of new industrial space entering a market.

This can matter in regions where tenant demand continues to grow.

Canada appears to be entering such a period.

CBRE expects approximately 19.3 million sq. ft. of new Canadian industrial supply during 2026, which would be the lowest annual total in eight years.

Less construction does not automatically mean rents will increase.

Tenant demand still needs to exist.

But limited new development can affect the supply-demand balance.

Interest Rates Don't Tell You What Tenants Are Doing

One of the biggest mistakes investors can make is studying financial markets while ignoring the businesses occupying the buildings.

Industrial real estate generates revenue because businesses lease space.

If those businesses need warehouses, shops, service facilities, manufacturing space and distribution buildings, that demand can support occupancy.

If tenant demand deteriorates significantly, lower interest rates alone will not fix the problem.

That is why current Western Canadian industrial data deserves attention.

CBRE reported 10.3 million sq. ft. of Canadian industrial net absorption during Q3 2026, the strongest quarterly result since 2022.

National industrial availability declined to 5.2%.

Calgary recorded approximately 3.8 million sq. ft. of net absorption during the quarter, its second-highest quarterly result on record.

Rental conditions also differed sharply by region.

National asking rents were down 2.4% year-over-year in Q3.

Yet Calgary and Edmonton recorded year-over-year rent growth exceeding 2%, while quarterly rent growth reached approximately 2.7% in Calgary and 3.3% in Edmonton.

This is an important lesson for anyone researching REITs in Canada.

There is no single Canadian real estate market.

Asset class and geography matter.

Why Industrial Real Estate Can React Differently Than Other REIT Sectors

REIT is a structure.

It is not an asset class.

A REIT could own:

• office buildings;
• apartments;
• shopping centres;
• hotels;
• industrial warehouses;
• healthcare facilities;
• storage facilities;
• data centres; or
• several property categories.

Each sector reacts differently to economic conditions.

An office REIT with high downtown vacancy may face completely different pressures from an industrial REIT operating in a supply-constrained market.

A hotel can reprice its rooms every night.

An industrial landlord might have tenants locked into multi-year leases.

An apartment owner may have hundreds or thousands of individual residential tenants.

A large distribution facility could have one tenant occupying the entire property.

The interest rate may be identical.

The underlying real estate economics are not.

That is why asking “Are REITs good when interest rates fall?” is usually too broad a question.

A better question is:

What properties does this REIT own, how are they financed, and what is happening in those specific property markets?

Public REITs Add Another Layer: The Stock Market

Publicly traded REITs have another factor to consider.

Their units trade on stock exchanges.

That means prices can react immediately to:

• Bank of Canada announcements;
• bond yields;
• economic forecasts;
• stock-market sentiment;
• investor flows;
• quarterly results; and
• expectations about future interest rates.

The underlying property portfolio might change very little during a week while the market value of the REIT changes considerably.

That is a characteristic of public-market liquidity.

Investors can buy or sell units during market hours, but the market sets the price continuously.

How Private REITs Differ

A private REIT in Canada does not normally trade continuously on a public stock exchange.

InvestPlus Industrial REIT, for example, issues private REIT units rather than publicly traded TSX units.

There is currently no secondary market through which InvestPlus units may be sold, and there is no assurance one will develop. Investors should therefore view liquidity very differently from a publicly traded REIT.

That limited liquidity is an important trade-off.

Private REIT valuations do not receive a new public stock-market price every second.

But that does not make a private REIT immune to interest rates.

The underlying buildings can still be affected by:

• mortgage rates;
• refinancing costs;
• cap rates;
• property valuations;
• tenant demand;
• acquisition financing; and
• the broader economy.

Private ownership changes the way investors access the investment.

It does not remove real estate risk.

For investors comparing the two structures, InvestPlus has prepared a separate report on the trade-offs between private and public REITs in Canada.

How Interest Rates Can Affect REIT Distributions

Many investors look at REITs because they may distribute cash generated by their properties.

But rent collected by a property is not the same thing as cash available for distribution.

A REIT first has expenses.

Those may include:

• property operating costs;
• property taxes;
• insurance;
• repairs;
• management costs;
• capital expenditures;
• financing expenses;
• administrative costs; and
• reserves.

Interest expense is part of that equation.

If debt costs rise substantially while rental income remains unchanged, distributable cash can come under pressure.

Strong rental growth or improved occupancy may offset some of the increase.

There is no fixed outcome.

This is why investors should never treat a REIT distribution like interest from a guaranteed deposit.

InvestPlus intends to make regular distributions of available cash, but distributions may be reduced or suspended. Investors should review the current Offering Memorandum for the complete terms and risks.

The Bank of Canada Rate Is Not Your REIT's Mortgage Rate

Another point creates frequent confusion.

The Bank of Canada's overnight rate is not the rate a commercial property owner automatically receives.

Commercial borrowing costs can reflect:

• Government of Canada bond yields;
• lender funding costs;
• loan duration;
• loan-to-value ratio;
• borrower strength;
• property quality;
• tenant quality;
• debt-service coverage;
• location;
• fixed versus floating terms; and
• lender competition.

That means the Bank of Canada can cut its policy rate without commercial mortgage costs dropping by exactly the same amount.

Longer-term bond yields can also move independently.

As of September 2026, the Bank of Canada's policy rate was 2.25%, while posted borrowing rates across the Canadian financial system remained materially higher.

Investors should therefore review a REIT's actual debt rather than making assumptions based solely on monetary-policy headlines.

What Should You Review in an Industrial REIT?

Interest rates should form part of the due-diligence process.

They should not be the whole process.

Before investing in an industrial REIT in Canada, consider asking these questions.

What does the REIT actually own?

Review the buildings rather than relying on the fund name.

Where are the properties?

Industrial economics can differ considerably from one Canadian market to another.

Who are the tenants?

A building's value depends partly on the businesses paying rent.

How long are the leases?

Lease expiry dates affect how quickly the landlord can reset rents and when vacancy risk may appear.

How much debt does the REIT carry?

Leverage can amplify property returns and losses.

When does that debt mature?

Upcoming refinancing can matter more than today's average interest rate.

Is the debt fixed or variable?

Variable debt may respond more rapidly to rate changes.

How are distributions funded?

Understand the relationship between property cash flow and distributions.

How are properties valued?

Ask how frequently valuations occur and what methodology is used.

What are the liquidity terms?

Private REIT units may have limited liquidity.

What does the Offering Memorandum say?

Marketing material should never replace the legal offering documents.

How This Applies to InvestPlus Industrial REIT

InvestPlus Industrial REIT focuses on income-producing industrial real estate across Western Canada.

Its published portfolio currently includes:

• 20 industrial buildings;
• approximately 750,000 sq. ft. of space;
• approximately $118 million in assets under management; and
• properties across Alberta and Saskatchewan.

That means the interest-rate discussion has to be viewed alongside the actual industrial markets in which the REIT operates.

Recent Western Canadian industrial indicators have remained relatively constructive.

Calgary recorded very strong leasing activity during Q3 2026.

Edmonton has also experienced tight conditions. CBRE reported in Q2 that Edmonton industrial vacancy had remained below 3% for seven consecutive quarters.

These conditions can support property fundamentals.

They do not remove financing risk, tenant risk, valuation risk or economic risk.

Investors should look at the complete picture.

What Happens If Interest Rates Rise Again?

No one can reliably predict every future Bank of Canada decision.

As of September 2026, the Bank maintained its policy rate at 2.25% while highlighting increased inflation risks and economic uncertainty.

If rates rise again, investors should watch:

Refinancing costs

Properties approaching debt maturity could face higher financing expenses.

Cap rates

Buyers may demand different yields from commercial property.

Transaction activity

Some acquisitions may become harder to finance.

Construction

Higher development costs may further reduce new supply.

Tenant conditions

High borrowing costs can also affect the businesses leasing industrial space.

Distribution coverage

Investors should monitor how property cash flow compares with financing and distribution requirements.

What Happens If Interest Rates Fall?

Lower rates can create different conditions.

Possible effects include:

• reduced financing costs;
• increased transaction activity;
• more competition for acquisitions;
• stronger real estate valuations;
• greater access to development financing; and
• increased investor interest in income-producing real estate.

But lower rates do not automatically create stronger REIT performance.

They can also occur because economic growth is weakening.

If tenants reduce space, businesses fail or rents fall, cheaper financing may only solve part of the problem.

Again, the property fundamentals matter.

The Better Question Isn't “Where Are Rates Going?”

Interest-rate forecasts get attention because they provide a simple number to discuss.

Real estate is more complicated.

Instead of trying to perfectly predict the next Bank of Canada decision, investors can focus on factors they can actually examine:

• property quality;
• acquisition price;
• tenant demand;
• occupancy;
• rents;
• debt;
• debt maturity;
• management;
• operating expenses;
• capital requirements;
• local supply; and
• liquidity.

Interest rates influence many of these factors.

They do not replace them.

For investors researching a private industrial REIT in Canada, the objective should be to understand how the investment could perform under several different rate environments rather than betting everything on one forecast.

Review the Details Before Making a Decision

Industrial real estate can provide access to physical properties leased to operating businesses without requiring each investor to personally buy and manage a warehouse or commercial building.

A private REIT provides one way to access that property type.

The trade-off includes investment risk and limited liquidity.

InvestPlus Industrial REIT units are not publicly traded. There is currently no secondary market for the units, and distributions may be reduced or suspended.

Before making an investment decision, review:

The Investor Overview

The Trade-Off in Private REITs Whitepaper

The Western Canada Industrial Portfolio

The Current Offering

Investor FAQs

After reviewing the information, investors who want to understand the strategy, structure and current opportunity can speak with Investor Relations.

Book a Discovery Call

Frequently Asked Questions

Do REITs perform better when interest rates fall?

Not automatically. Lower rates can reduce financing costs and support property values, but REIT performance also depends on occupancy, rents, tenant demand, debt levels, acquisition pricing and the type of real estate owned.

Are high interest rates bad for REITs?

Higher rates can increase borrowing and refinancing costs and can put pressure on property valuations. However, a REIT with manageable debt, strong properties and good tenant demand may respond differently from one with heavy leverage or weak property fundamentals.

What is the Bank of Canada interest rate in 2026?

As of November 4, 2026, the Bank of Canada's target overnight rate is 2.50%, following the 25-basis-point increase announced on October 28 and effective October 29, 2026.

How do interest rates affect industrial real estate?

Rates can influence financing costs, property values, cap rates, new construction and acquisition activity. Industrial property performance also depends heavily on local tenant demand, vacancy, rental rates and new supply.

Are private REITs less affected by interest rates than public REITs?

Private REIT units do not trade continuously on a public stock exchange, so investors do not see daily market-price changes caused by interest-rate expectations. However, the underlying properties and debt remain exposed to financing costs, cap rates, valuations and broader economic conditions.

What should I review before investing in a private REIT?

Review the portfolio, debt, lease structure, occupancy, fees, distributions, valuation methodology, redemption terms, financial statements, risk factors and current Offering Memorandum. Speak with a registered Exempt Market Dealer and qualified professional about your individual circumstances.

Why focus on Western Canada industrial real estate?

Western Canada includes major industrial markets serving transportation, logistics, construction, energy, agriculture, manufacturing and service businesses. Current market conditions differ by city and property type, so investors should assess individual markets and buildings rather than treating Western Canada as one uniform market.

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