Knowing what to consider when thinking of pausing or powering ahead can make all the difference.
Trade uncertainty, the potential for a recession, and sustained labour shortages have all had significant impacts on Canada’s real estate and construction industry.
Trying to make decisions about the business when you’re not sure what the economy will look like next month let alone next year can be an overwhelming task.
Whether you choose to slow down operations or stay optimistic and push forward, there is some information you should take the time to review before making any big decisions.
Things to consider
The real estate and construction industry, is constantly having to adjust plans depending on the state of the market. But right now, the stakes may seem higher.
In recent years, the industry has faced both significant challenges and periods of opportunity. As the market cools to more historic levels and global trade tensions add new layers of economic uncertainty, now may be the time to reassess your business and approach the future from a different perspective.
Persistent inflation, high interest, and rising trade friction — including ever–changing tariffs — are continuing to weigh heavily on the industry. While inflation has eased from record highs, the cost of materials, labour, and financing remains elevated. At the same time, supply chains disruption and pricing volatility stemming from international trade tensions are adding new pressures. The Bank of Canada’s monetary policy has aimed to curb inflation, but with borrowing costs still high and access to capital tightening, businesses must carefully assess how to manage cash flow, debt servicing, and long-term investments.
Before you decide to slow operations or embark on a big new project, there are a few things to consider.
Sources of capital: Where is your financial capital coming from, and how secure is it in today’s environment? Lenders have become more selective — tightening requirements and asking for stronger guarantees, higher debt service ratios, and lower loan-to-value thresholds. This makes securing new capital increasingly difficult, especially for asset classes like office real estate, which may face a triple threat of high construction costs, weak demand, and scare financing. Understanding your runway and proactively engaging with bankers, lenders, or investors is crucial. Revisit your capital strategy to ensure you can fund operations and future plans — not just for the next few months, but for the long-term.
Pro forma statements: What does the forecast look like and is there variability there? If you’re a homebuilder or condo developer, purchaser default risk has risen due to higher borrowing costs. Many buyers committed to a purchase at the peak of the market — before interest rates climbed — and may now be unable to close those deals. Similarly, tenants across commercial assets are at higher risk of default as business uncertainty increases. Sensitizing your pro forma financial information to reflect risk, including revised rent assumptions, cap rates, and credit checks. This will help ensure your business can withstand unexpected shocks.
Staffing: Do you have the right number of staff needed to adapt to the changing economic environment? If business slows further, will you have to lay people off? If business picks up, will you need to hire more staff and are people with the skill set you need available? These are just a few of the big questions to ask yourself before moving forward. Knowing your team and their capabilities, skills, and strengths will help you determine if you have what you need to make a profitable decision.
Internal business processes: Are you using the right systems, and do you have the proper information available to you to make the right choice for your business? Without valuable data outlining detailed revenue and expense information, it will be difficult to make an informed choice.
Benchmarking: How are other businesses in the region doing? What types of projects are they undertaking? Have they changed the scope of their work to adapt and is their approach working? Having this kind of comparison to other businesses similar in size and scope to yours, you’ll be able to see how various decisions have panned out to help paint a picture of which option is the most viable for you.
Canvassing your internal environment: What does your cost structure look like? What will it cost you to hold off on a project or continue, full steam ahead? Engage with your financial team to look at the market and assess the opportunities and hindrances present.
What’s next?
Whether you’ve decided to pause, pivot, or press ahead, one thing is certain: the real estate and construction landscape continues to evolve, and it’s unlikely to return to how it operated just a few years ago.
Unyielding pressure from high interest rates, elevated construction and financing costs, and shifting global trade dynamics have created a more complex environment for decision-making. While some challenges may ease over time, others such as labour shortages and limited access to capital could remain part of the industry’s long-term reality.
Success in this in environment doesn’t hinge on predicting what’s next with certainty. It depends on building resilience. Businesses that take time to understand their operations, revisit forecasts, and stress-test financials assumptions will be better positioned to respond as conditions change.
Here are a few key areas to consider when planning for what comes next:
Timing: What is the market doing right now? How might that change and what would an extreme situation mean if you go down a certain path? These may be the most important questions you’ll ask when at this crossroads. While you can’t predict the future, you can assess the benefits and pitfalls to waiting or staying the course.
Organizational structure: Do you have the right people involved in making these decisions? Are your teams’ goals and strategies aligned? Now may be the time to look at your organizational structure and make any changes needed to ensure long-term success.
Compensation strategies: Do you have the right compensation strategy in place to help retain and/or attract new talent? Given the shortage of labour in the industry, it’s vital that you have what you need to get you to the finish line. If you’re looking to hire, there may be opportunities if other businesses are letting people go.
Tax strategies: Does the business have proper tax strategies in place? Where is income generated and what does the business look like, overall? Financial advisors can help you assess your tax strategies and determine if they’re working for you.
No one wants to sit still and not act if it could mean unrealized profits, but with the cost of capital higher than in previous years, optimism alone isn’t enough to justify taking on new risks. A measured approach that accounts for inflation’s impact on pricing, supply chains, and financing will position your business for success.
As a Business Advisor with MNP’s Assurance and Accounting Services team in Ottawa, and with over a decade of experience, I can help paint a detailed picture of your operations, highlight areas for improvement, and map out your future goals.
Taking a step back to critically assess all facets of your business will benefit you, no matter the path you choose. MNP is here to support you in this process. Let’s start the conversation together.
Partner
Email: Milan.Kshatriya@mnp.ca
