By: Adam Jacobs, PhD – National Head of Research at Colliers in Canada
Canada's commercial real estate industry doesn’t have to look too hard into the government’s massive defence investment plan to find opportunities, and crucial roles to play.
The Defence Industrial Strategy aims to invest $180 billion in defence procurement and attract $290 billion in defence-related capital investment over the next 10 years, with an anticipated $125 billion downstream economic benefit by 2035.
Canada’s defence spending, while stable as a share of GDP, has been on the lower side of the global distribution. Spending in 2024, a record-high level, remained below G7 peers such as Italy and Japan, and even below smaller economies and populations such as Australia and Poland.
Spending has risen over 25% since then, with resources devoted to secondary defence needs such as health care, recruitment and pay raises. We’re also seeing investments in machinery and equipment like armoured vehicles and drones; and the digital aspects such as cyber defence and technology.
Overall defence spending has risen since 2020, pre-dating the Ukraine war, the second Trump administration, Mark Carney’s ascent to prime minister, and Middle East conflicts.
This trend will likely continue.
What kind of work and services will be required?
Among the available opportunities are shipbuilding contracts, aircraft and aircraft parts manufacturing, weapons and ammunitions-making, and vaccine-production facilities, to name just a few. Colliers’ Research team identified 73 various announced or in-process contracts, each valued at a minimum of $10 million, in communities coast to coast.
Many of the contracts in the defence strategy have commercial real estate requirements, such as expanded manufacturing and warehouse facilities; research and development space; training facilities; logistics hubs; testing labs; engineering hubs; and office space.
There will also be many complementary roles to play, or downstream real estate requirements, as these contracts get approved and fulfilled. Those services include research, project and property management, valuation, workplace advisory, and sales and leasing.
There could eventually be growth and hiring in associated professional services like finance, insurance, legal, accounting and human resources around the country.
Other implications for the property market
There are other considerations our industry will be watching.
Let’s keep an eye on labour needs, as Canada is already facing a shortage of skilled tradespeople. Due to rising demand, and a wave of retirement, the national construction industry will require another 350,000-380,000 skilled tradespeople by the mid 2030s, according to BuildForce data. And this demand comes just as the country had its first-ever year of negative population growth.
It's important that one region or sector doesn’t lose skilled labour for the benefit of another. The skilled labour pool must expand to keep pace with current demand and meet new demands.
In addition to the defence investment plan, the federal government also has a massive national infrastructure strategy. That separate initiative includes $192 billion in new government investment and aims to attract $500 billion in future private sector investment.
If we look at the big-picture spending and investment figures the government is describing, it amounts to roughly $1.16 trillion in defence and infrastructure investment from government and private sources.
That’s a huge amount that governments and companies will need to borrow. That scale of financing likely isn’t possible at current interest rates, so there could be easing of rates to facilitate this. While rates are lower in Canada than many other peer nations, rising bond yields are still a challenge for a federal government looking at a significant increase in debt.
That easing would benefit investors and developers in all corners of the country as they try to get their own residential and commercial projects financed and built.
Increasing defence spending, whether to mollify NATO partners and the U.S. government, or for other reasons, is likely to significantly impact the real estate landscape.
We’re facing a pivotal time that hopefully sees expedited approval, financing and construction of crucial defence contracts. For stakeholders in commercial real estate, there are going to be many opportunities and challenges in this push.
