Two of Canada’s largest pension funds say it is getting harder to justify investing in real estate south of the border, but the enormity of the market keeps the

United States on their radar. Real estate executives from the Healthcare of Ontario Pension Plan (HOOPP) and Alberta Investment Management Corp. (AIMCo), members of Canada’s Maple Eight with close to $300 billion in assets between them at year-end, told a real estate conference run by NAIOP, known as the Commercial Real Estate Development Association, that they are taking a cautious approach on further investments.

Sarah Esler, managing director and head of mortgage investments at AIMCo, said her group has been surprised to see construction costs only rise one per cent to three per cent, but they see those numbers growing.

“We are still waiting to see what happens over the next little bit. It has shifted a little bit of our investment strategy in the near term, where we are putting less dollars in new financings today,” she said during a panel discussion on

tariffs . The Alberta pension fund executive said labour is something that could impact construction costs, noting undocumented workers constitute 15 per cent of workers in the United States.

“What we have seen is labour not showing up to sites, they are scared of people being deported,” said Esler. “New construction, you need to really pay attention to who your contractor is and do they have good access to labour.”

Esler emphasized that AIMCo has been an investor in the United States going back to the global financial crisis but today money is moving back to Canada and facing a more competitive environment.

“We like the U.S. still, and we are interested in continuing to develop our program there, but what we are finding challenging is hedge costs,” said Esler, adding the difference in

interest rates between Canada and the United States drives costs up. “It makes it almost impossible for us to make money in that market. So we shifted our strategy more towards Europe.”

Eric Plesman, global head of real estate with HOOPP, said the uncertainty caused by tariffs has caused the pension fund to derisk its portfolio.

“No new shovels go in the ground unless everything is pre-leased,” said Plesman, speaking to the lack of appetite at the pension fund to build anything speculative.

Plesman noted that the reluctance to invest south of the border is not unique to Canada. Section 899 in the Big Beautiful Bill, which would have imposed a withholding tax on pension funds and others, has spooked people, even though that piece of the legislation was withdrawn.

“Our perspective is that they were intending to raise almost US$120 billion for the U.S. treasury. If you eliminate it wholeheartedly, the question is what do they put back in place to try and make up that shortfall?” said Plesman, noting the United States needs that money to fund its tax reductions. “That is why capital flows are not going to the U.S. at the same level as they would have before. If I look at our own book, the bar is fairly high (for a new U.S. investment).”

Plesman said Canada looks like a better place to invest and the same is true for Europe, with Asia a possibility, too.

“I have heard this from some European investors; they have simply changed their allocation that they were otherwise making for the U.S. to come to Canada,” said Plesman, adding the economic picture in Canada is not great but the country has stability.” “That is an important attribute.”

Kevin Gorrie, the chief executive of Toronto-based Granite Real Estate Investment Trust, which owns a 65-million square foot industrial portfolio with more than half of it in the United States, said his REIT probably won’t grow overall in the U.S.

“Everything comes with a price,” said Gorrie, adding he does see shifting opportunities in some parts of America. “Pricing has opportunity in some markets. I think there is opportunity in Europe.”

The REIT executive said tariffs have not had the impact people expected but instead shifted demand in the U.S. away from places like Los Angeles, and New York and New Jersey that are import-drive and into places like the southeast.

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Gorrie noted anecdotally he is seeing some institutional Americans investors return to the Canadian market, after years of exiting the market for reasons other than tariffs. “We are starting to slowly see a return of the U.S. investors to Canada. I think they do like the stability,” he said.