For construction and real estate finance leaders in Calgary, the question dominating boardroom discussions this spring is straightforward but consequential: At 2.25%, how should we be modeling borrowing costs and evaluating project returns?
With the Bank of Canada holding its policy rate steady through three consecutive meetings in 2026, the environment has shifted from the rapid-fire cuts and hikes of recent years to what looks increasingly like a period of stable monetary policy. For CFOs and controllers in the construction and real estate sectors, this recalibration demands a fresh approach to project financing, capital allocation, and risk management.
At BullsEye Recruitment, we work with senior finance leaders across Calgary’s construction and real estate industries. And the message we’re hearing consistently is that while rate stability brings predictability, the margin for error in project underwriting has never been thinner.
The Current Rate Environment: Stability, But Not Certainty
Let’s start with what we know. The Bank of Canada has maintained its policy rate at 2.25% since October, with Governing Council reaffirming the hold at its March 2026 meeting. In its January Monetary Policy Report, the Bank projected annual average GDP growth of just 1.1% in 2026, following 1.7% growth in 2025. Inflation has been close to the 2% target for more than a year, though recent geopolitical events are introducing new variables.
Most major forecasters expect the Bank to remain on hold throughout 2026. Bank of America economists anticipate the 2.25% rate will hold for the foreseeable future, citing domestic economic weakness as a sufficient buffer against inflationary pressures. RBC similarly expects the overnight rate to remain steady through the end of 2026.
What does this mean for project financing? The current rate sits at the lower bound of the Bank’s estimated neutral range (2.25% to 3.25%), indicating that policy is neither aggressively stimulative nor restrictive. For construction borrowers, this has translated into institutional construction loan rates of approximately 4.45% for qualified borrowers, a meaningful improvement from the peak of the tightening cycle.
However, the outlook isn’t without risk. The war in Iran has added a new layer of uncertainty, causing oil prices to move sharply higher and introducing potential upside pressure on inflation. Trade uncertainty surrounding the upcoming CUSMA review continues to weigh on business investment, and some economists anticipate the next rate move could be a hike to 2.75%, though not until 2027.
Recalibrating the Financing Model
For construction CFOs, the shift from a volatile rate environment to one of stable, but elevated, borrowing costs demands a thoughtful refresh of project financing models. The era of near-zero rates is behind us. The era of rapid cuts appears to be on pause. What remains is a neutral-rate environment where underwriting discipline separates successful projects from marginal ones.
Contingency planning has become non-negotiable. With construction costs in Calgary experiencing year-over-year increases of 4.50% as of Q1 2026, according to Rider Levett Bucknall’s Q1 Cost Report, and hidden costs pushing many projects 15–35% over budget, the days of lean contingency buffers are over. Finance leaders are increasingly building 15–20% contingency funds into their financing structures, not as a conservative luxury, but as project insurance.
The draw mortgage structure deserves a second look. For development projects, the progress draw system, where lenders release funds at key milestones such as foundation completion, lock-up, and final completion, offers distinct advantages in a stable rate environment. During the construction phase, borrowers typically make interest-only payments on drawn amounts, reducing monthly carrying costs while projects are still generating zero revenue.
Rate lock strategies require recalibration. With most forecasters expecting rates to hold steady through 2026, the case for floating-rate construction financing has strengthened. However, with the potential for rate hikes in 2027, CFOs should evaluate hybrid structures that provide short-term flexibility while hedging against upward moves beyond the 12- to 18-month horizon.
Evaluating Project Returns in a Neutral-Rate World
The transition from a falling-rate environment to a stable one changes how CFOs should evaluate project returns. When rates were declining, the bias was toward accelerating project timelines to capture lower borrowing costs. In a stable environment, the calculus shifts.
Leverage the construction boom, but with discipline. Calgary’s construction sector remains exceptionally active. Housing starts in January reached 46,143 units, the third-highest total ever for that month, with Calgary accounting for 56% of January starts across the province. Approximately 26,000 homes are currently under construction, adding continued supply over the next several years. Meanwhile, Alberta’s 2026 budget directs $1.1 billion over three years for LRT expansion, including an airport connection, alongside $266 million for upgrades to Deerfoot Trail.
For developers and contractors, the opportunity is clear. But with supply increasing and demand expected to remain relatively flat due to slower migration and stable employment, pricing power is moderating. The CREB forecast suggests that detached and semi-detached homes will remain more balanced, supporting stable prices, while the substantial pipeline of apartment-style units may place downward pressure on multifamily pricing.
Refinance risk deserves attention. With a significant volume of mortgage renewals scheduled for 2026, the financial health of counterparties, particularly in the residential development space, warrants careful monitoring. Construction CFOs should stress-test counterparty exposure and evaluate the cascading effects of any distress in the housing market.
The public-private opportunity is expanding. Alberta’s $28.3 billion three-year Capital Plan, a $2.2 billion increase from Budget 2025, represents a meaningful pipeline of publicly funded infrastructure projects. For construction firms with the capacity to pursue P3 and government contracting opportunities, the stable rate environment makes long-term project financing more predictable and attractive.
Sector-Specific Opportunities in Calgary
Calgary’s construction and real estate landscape is not monolithic. Understanding where the pockets of strength and vulnerability lie is essential for informed capital allocation.
Industrial and logistics continue to outperform, with Q4 2025 ICI permits growing 11%, driven by an 18% rise in industrial permits and a 12% increase in commercial activity. E-commerce fulfillment, warehousing, and light industrial remain active sub-sectors.
Purpose-built rental is benefiting from targeted policy support. CMHC’s Apartment Construction Loan Program provides construction financing at up to 95% of project costs, dramatically reducing equity requirements for qualified affordable rental projects.
Multifamily residential faces headwinds. With roughly 80% of new units in Calgary being multifamily and supply continuing to enter the market, developers should underwrite with conservative absorption assumptions.
Infrastructure remains a bright spot, supported by federal and provincial funding commitments across transportation, healthcare, and education facilities.
Managing Risk in an Uncertain Environment
While the base case for rates is stability, the range of possible outcomes is unusually wide. Governor Macklem has acknowledged that “elevated uncertainty makes it difficult to predict the timing or direction” of the next move. For construction CFOs, this means building optionality into financing arrangements.
Stress-test against multiple scenarios. Model project returns across three rate paths: continued stability at 2.25%, a gradual increase to 2.75% in 2027, and a more aggressive hiking cycle tied to persistent inflation. Understanding the breakpoints at which project returns become marginal is essential discipline.
Procurement risk requires active management. Tariffs on imported metals have driven sharp increases in steel, aluminum, and copper pricing, the largest annual spikes since the supply chain disruptions of 2022. Finance leaders should work closely with operations to revisit procurement strategies, lock in pricing where possible, and build escalation clauses into contracts.
Labour availability is a financial risk. With nearly a quarter of all trades job vacancies in Canada concentrated in Calgary, labour constraints translate directly into schedule delays and cost overruns. Contingency planning must account for extended timelines and premium labour costs.
The construction and real estate sectors in Calgary are navigating a fundamentally new financial environment. Not the emergency of a pandemic-induced downturn. Not the euphoria of near-zero rates. But a neutral-rate world where underwriting discipline, contingency planning, and risk management separate the projects that move forward from those that stall.
For construction CFOs, the path forward is clear: recalibrate financing models to account for stable but elevated borrowing costs, stress-test returns against multiple rate scenarios, and build the contingency and procurement flexibility that today’s environment demands.
For finance professionals seeking their next opportunity in these dynamic sectors, Calgary’s construction boom and infrastructure pipeline represent meaningful career runway. And for employers, finding senior finance leaders who understand the nuances of project financing in a neutral-rate environment has never been more critical.
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