The State of Toronto’s Commercial Real Estate Industry

The Demand for Commercial Real Estate in Toronto

In stark contrast to housing, the commercial real estate industry in Canada as a whole is suffering from a lack of consumer interest. According to Tamsin McMahon of The Globe and Mail, the demand for commercial office and retail space nationwide is plummeting. A trend that McMahon believes is the result of a surplus of office space available, declining oil prices (affecting the value of the CAD), as well as “skittish” investors.

“Demand, or lack thereof, will be the biggest story in the office sector,” – Paul Morassutti, executive vice-president CBRE Ltd. (RealCapital real estate conference in Toronto

Thankfully, regional differences do exist in both demand and price for commercial real estate, particularly in Toronto and Vancouver, arguably the two hottest markets in the country. Toronto is a bit of an anomaly, in that, most analysts would agree that prices are surging and will continue to rise in the foreseeable future. However, there is some debate regarding whether or not the demand for commercial space is the GTA is healthy, or falls in line with national trends.

Interest from Foreign Investors

McMahon believes that the sustained demand for Toronto commercial properties by Asian foreign investors is what’s driving prices up. Foreign investors, having analyzed the record breaking sales figures and escalating prices both residentially and commercially, view Canadian real estate as a safe investment guaranteed to garner hefty returns.

Toronto Real Estate Board president Mark McLean, and the figures TREB published in early March pertaining to commercial sales and average lease rates, tell a different story. According to McLean:

“it is clear that there remains a degree of uncertainty in many sectors regarding the outlook for the next year. This uncertainty seems to have translated into caution when it comes to firms committing to more industrial, commercial/retail or office space,”

Members of the TREB’s Commercial Network reported leasing 392,132 square feet of combined industrial, commercial/retail and office space in February 2016, down from 796,437 square feet of space leased during the same period in 2015. Market Wired offers a great breakdown of the sales and pricing data provided by TREB, which has been summarized below.

Leased Square Feet in Toronto:

  • Feb. 2015: 107,045
  • Feb. 2016: 56,716
  • Percentage: -47.0%

Average Lease Rate

  • Feb. 2015: $17.44
  • Feb. 2016: $19.82
  • Percentage: 13.7%


  • Feb. 2015: 21
  • Feb. 2016:  22
  • Percentage:  4.8%

Average Sales Price (per square foot)

  • Feb. 2015: $352.12
  • Feb. 2016: $355.20
  • Percentage: 0.9 %

Whereas the average lease rates for properties transacted on a per square foot basis were up for the commercial sector year-over-year, the actual amount of square feet being leased has dropped by almost half! This, a demonstrated decrease in demand with an increase in price, somewhat defies traditional real estate logic. But the numbers don’t lie.

Jason Quintal | April 3, 2016

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