Toronto commercial real estate market update – Q1 2025

In the first quarter of 2025, commercial investment in the Greater Toronto Areas moderated amidst economic headwinds, down 6% year-over-year

The Greater Toronto Area (GTA) commercial real estate market experienced a moderate contraction in investment activity during the first quarter of 2025, with a total dollar volume of $3.5 billion transacted, representing a 6% decrease compared to the same period last year. This cautious market sentiment was largely influenced by significant macroeconomic developments, most notably the Bank of Canada’s (BoC) 25 basis point reduction of the overnight rate to 2.75% on March 12th. This policy adjustment was largely attributed to concerns over heightened trade tensions resulting from tariffs imposed by the United States, which were expected to dampen economic activity and potentially increase inflationary pressures within Canada. Consequently, investors began this year with a cautious approach to capital deployment, influenced by the evolving political landscape and resulting uncertainty. Insights from the Altus Group’s Q1 2025 Investment Trends Survey (ITS) revealed a significant shift in investor preferences, with the GTA receding to the 5th position in investors' market preference.

Figure 1 - Greater Toronto Area property transactions – All sectors by year

Retail investment activity

The retail sector exhibited strong investment activity, with $935 million in dollar volume transacted, marking a 59% year-over-year increase. This growth was driven by substantial activity in many prime locations, even amidst economic headwinds. However, a significant disruption is on the horizon for Canada’s retail market: Hudson’s Bay’s filing for creditor protection on March 7th. The potential closure of its network, with a long-standing presence in over 80 shopping centres, presents a considerable challenge in terms of absorbing the resulting vacant space. This situation drew parallels to the closures of Sears and Target, which collectively created over 35 million square feet of vacant space. With the limited pool of single tenants capable of filling anchor spaces, Hudson’s Bay’s departure will compel landlords to explore innovative redevelopment and revitalization strategies for their properties, mirroring their responses to previous major anchor tenant exits.

Industrial investment activity

The national industrial sector experienced ongoing adjustments due to a temporary oversupply caused by substantial deliveries in the second half of 2023, leading to softer market conditions. Adding to this shift was the prevailing economic uncertainty, mainly from the impact of rising trade tensions with the United States, which dampened investor confidence. Despite these difficulties, the GTA’s industrial sector recorded $1.3 billion in dollar volume transacted, a 26% increase year-over-year. According to Altus Group’s latest Canadian Industrial Market Update, Toronto’s industrial availability rate increased by 40 basis points to 4.6% year-over-year. On the construction front, the GTA added nearly 1.5 million square feet of new supply, with 34% of the space available for lease. The construction pipeline reported 9.6 million square feet under construction and 86% of the space available for lease.

Multifamily investment activity

The multifamily sector recorded $208 million in dollar volume transacted, a 25% decrease year-over-year. This tempered growth likely reflected the impact of ongoing economic uncertainty and the looming threat of tariffs, which overshadowed the positive impact of falling interest rates on investment sentiment. Even with these challenges present, demand continued to outpace supply, driven by sustained population growth and persistent affordability challenges in the region. Recognizing this imbalance, on March 19th, the City of Toronto and the Government of Canada announced a $2.55 billion agreement aimed at fast-tracking the construction of seven rental projects. This initiative includes a requirement for at least 20% affordable units, with a construction start target in 2026. Further supporting development, the City committed an additional $235 million in financial incentives to provide relief from development charges, fees and property taxes.

Office investment activity

The GTA’s office sector continued to navigate a significant downturn in investment activity, grappling with evolving workplace preferences and the ongoing impact of return-to-work mandates. This translated to a substantial year-over-year decrease in investment volume, with $134 million in dollar volume transacted, representing a 38% decline. According to Altus Group’s latest Canadian Office Market Update, Toronto’s availability rate increased by 50 basis points to 18.8% year-over-year. Despite the overall softening in demand, leasing activity remained concentrated in high-quality Class A properties, underscoring a persistent “flight-to-quality” trend. Within the GTA, the flight-to-quality trend extended beyond the Class A/B/C divide, as investors increasingly prioritized Class AAA properties, creating a nuanced segmentation within the Class A market itself. On the development front, the market recorded two new fully leased office completions, totalling 139,714 square feet. Furthermore, the GTA has nearly 2.6 million square feet under construction, with 59% of the space pre-leased, suggesting continued, albeit selective, demand for new office accommodations.

Land investment activity

The land sector, which includes both residential and ICI land, experienced a total transaction volume of nearly $836 million, representing a 26% decrease compared to the previous year. Within this, the residential land sector saw nearly $399 million in dollar volume transacted, marking a 51% year-over-year decline. Conversely, the ICI land sector recorded $437 million in dollar volume transacted, showing a 43% increase from the prior year. Market conditions, significantly influenced by current economic trends such as elevated interest rates and cautious investor sentiment, have resulted in a noticeable slowdown in land sales throughout 2024. This trend has extended into the early months of 2025, as developers in the GTA have largely adopted a wait-and-see approach, closely monitoring market signals before committing to new projects. This hesitancy is likely due to uncertainty surrounding the overall economic outlook and Canada’s tariff response, potentially affecting future housing supply and commercial development in the region.

Figure 2 - Greater Toronto Area property transactions by asset class (2024 vs. 2025)

Notable Toronto property transactions

The following are the notable transactions for the Q1 2025 Toronto commercial real estate market update:

Oshawa Centre, Oshawa – Retail

Oshawa Centre, a prominent regional shopping destination east of Toronto, encompasses approximately 1.2 million square feet of retail space. Representing the highest transaction in the first quarter of 2025, the property was acquired by Primaris REIT for $375 million. The transaction involved a combination of cash consideration, REIT units, and exchangeable preferred units in a newly in a new limited partnership. The vendor, Ivanhoé Cambridge, had previously invested $230 million in a comprehensive redevelopment of the mall, completed in 2016. Notably, anchor tenant Hudson’s Bay announced in March its intention to liquidate all stores following a filing for creditor protection. Primaris has indicated its preparedness to manage the anticipated departure of Hudson’s Bay from the tell malls within its existing portfolio.

Bisha Hotel, Old Toronto – Hotel

The Sunray Group has made a significant entry into Toronto’s downtown hospitality sector with its acquisition of the Bisha Hotel from Lifetime Developments and INK Entertainment Group for $91 million. Situated within the lower nine floors of a striking 44-storey mixed-use tower, the Bisha‘s upper levels feature residential condominium units. Following the acquisition, the hotel is slated to be rebranded under Marriott’s prestigious The Luxury Collection, marking this property as its inaugural Canadian location.

7900 Airport Road, Brampton – Industrial

In the largest industrial transaction of the first quarter, Crestpoint Real Estate Investments Ltd., in partnership with PSP Investments, acquired a LEED Gold certified industrial warehouse located at 7900 Airport Road in Brampton for $235 million. The expansive 745,121-square-foot facility was sold by Unilever Canada Inc. at a price of $340 per square foot. Unilever Canada Inc. had recently purchased the same property for $163 per square foot in October 2024 and will remain in the building as its sole tenant.

16860 & 16920 Leslie Street, Newmarket – Residential Land

City Park Homes has purchased a 39.85-acre assembly of three land parcels for $50 million. The site had previously secured Official Plan Amendment and Rezoning approval with holding provisions in 2022, followed by draft approval for a plan of subdivision in March 2024. These approvals permit a medium-density development comprising 48 single detached dwellings and 254 townhouse dwellings. A designated heritage building situated on the property will be retained and restored. The project, initially proposed in December 2012, has faced long-standing opposition over concerns of green space protection, traffic flow, and the preservation of the heritage house.

Figure 3 - Greater Toronto Area OCR trends across 4 benchmark asset classes

Conclusion

The first quarter of 2025 presented a mixed picture for the GTA’s commercial real estate market. While overall investment volume experienced a moderate decline, reflecting broader economic uncertainties and the impact of the BoC’s interest rate cut in response to escalating trade tensions, individual sectors exhibited divergent trends. Moving forward, the GTA is likely to continue to be shaped by the interplay of macro-economic factors, including interest rate movements and trade policies, as well as sector-specific dynamics such as the evolving retail landscape, softening conditions in the industrial sector and the ongoing recalibration of the office market. The market’s ability to adapt to these challenges, particularly in re-purposing vacant retail spaces and absorbing new industrial and office supply, will be crucial in determining its performance throughout the remainder of 2025.

View the Toronto CRE market update for Q4 2024

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