Kelowna commercial real estate market steady as investors focus on retail fundamentals

KELOWNA · The Kelowna commercial real estate market held steady through the first half of 2026, showing activity comparable to the same period last year, according to a new industry report. Kris McLaughlin of REMAX Kelowna, who contributed to the REMAX Canada Fall 2026 Commercial Real Estate Report, said investor interest remains strong but buyers are exercising greater caution. He said capital is still available, though financing now faces more selective underwriting. Investors are conducting more due diligence and concentrating on the fundamentals of individual properties, with multi-tenant retail spaces drawing the most attention.

Retail properties are seeing cap rates between 4.8 and 5.4 per cent, a slight increase from recent years. Lease rates for retail space have risen marginally, with top-tier Class A space now renting for $27 to $42 per square foot on a net basis, while Class B space ranges from $22 to $30. Businesses are most commonly seeking spaces between 1,200 and 2,000 square feet with good visibility, though demand persists for units up to 4,000 square feet as companies adjust their footprints. Some larger properties, like the former Canadian Tire store on Leckie Road, offer options for subdivision or reconfiguration.

Activity in development land and multifamily construction has slowed due to worries about oversupply, raised construction costs and stricter financing. The Canada Mortgage and Housing Corporation reported the purpose-built rental apartment vacancy rate in the Kelowna area reached 6.4 per cent in 2025, up from 3.8 per cent the previous year and among the highest nationally. This softer rental environment stems from new supply, slower population growth and affordability pressures, with average rents for one-bedroom apartments in the existing stock nearing $1,600 per month. Office vacancy has increased slightly as tenants keep a close watch on costs. The report notes that return-to-office policies are unlikely to significantly reduce the amount of available space, which includes options from bare shell to finished units sized between 2,000 and 20,000 square feet. Some landlords are attempting to attract reliable tenants by offering ready-to-use space for $28 to $36 per square foot, but the market will need to see improved absorption before it stabilizes.

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The industrial sector is in a recovery phase, with vacancy rates just beginning to decline again. High construction costs are causing hesitation around new projects, a situation worsened by softening rents. Newly built industrial space that once leased for $16 to $18 per square foot now commands only $15 to $17, making new developments harder to justify financially. McLaughlin warned that if new projects stall, the market could face an undersupply within a few years. Notable transactions handled by REMAX in the period included the sale of a fully leased retail and commercial building at 1953-1955 Baron Road, listed at $5.85 million, and a three-storey retail and office property at 3001 Tutt Street, offered for $10.2 million. The brokerage also represented the buyer of a multi-tenant property exceeding 14,000 square feet at 1753 Dolphin Avenue, which was listed at $5.17 million.

Population growth in the Kelowna census metropolitan area slowed to 1.2 per cent between July 2024 and July 2025, according to Statistics Canada. McLaughlin said the overall market has transitioned from a period of rapid expansion to one characterized by greater discipline. "Capital remains available, but investors are more discerning and focused on income, tenancy and long-term fundamentals," he said. Well-priced properties are still likely to find buyers, but activity is being tempered by tighter financing, higher construction costs and more modest growth.

With files from REMAX Canada