Toronto commercial real estate market update – Q4 2024

In 2024, investment activity in the Greater Toronto Area waned, with transaction volume down by 21% year-over-year

In 2024, the Greater Toronto Area (GTA) reported $17.5 billion in dollar volume transacted, down 21% compared to 2023. On December 11, 2024, the Bank of Canada (BoC) brought the overnight rate down 50 basis points to 3.25% as the country’s economic growth fell short of the forecasted 1.5% growth initially predicted for the third quarter. The slowdown in business investment contributed to weaker-than-expected growth and partially negated the substantial gains observed in the second quarter. Despite the inherent lags in the market, according to Altus Group’s latest Canadian CRE Investment Trends Survey, Toronto was the most preferred market by investors for all property types.

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

By the end of the fourth quarter, demand in the industrial sector moderated, with nearly $5.6 billion in dollar volume transacted, a 27% decrease year-over-year. According to Altus Group’s latest Canadian industrial market update, Toronto’s industrial availability rate decreased by 10 basis points to 5.3% from the previous quarter. In terms of construction, the GTA added three million square feet of new supply with 85% of the space available for lease. The construction pipeline reported 1.8 million square feet under construction and 94% of the space available for lease. With the short-term oversupply, plateaued rental rates, and reduced deliveries expected for 2025, greater incentives have been offered to absorb excess space on the market.

The GTA office sector’s performance has been lacklustre, with $1.6 billion in dollar volume transacted, a 46% decrease year-over-year. According to Altus Group’s latest Canadian office market update, Toronto’s availability rate decreased by 80 basis points to 19% after peaking in the third quarter. Moreover, the hybrid work model continued to be the preferred work arrangement among Canadians, which has led Canadian employers to reduce the size of their office footprints. According to Statistics Canada, 11.5% of employed Canadians work remotely as of November 2024, with little change compared to the same period last year. However, among the hybrid workers, 55.8% worked at least half of their hours or more at locations other than home, up 4.2 percentage points year-over-year, an indication of more time spent working on-site. Furthermore, companies continued favouring Class-A trophy assets and leaving behind the functionally obsolete older Class-B and -C stock, furthering the divide between the classes. The market recorded two new office completions totalling 554,062 square feet, with 27% of the space uncommitted. Furthermore, the GTA has nearly 2.7 million square feet under construction, with 60% of the space pre-leased.

The multifamily sector’s activity has been on a gradual recovery in 2024, with $2.3 billion in dollar volume transacted, a 48% increase year-over-year and the only major sector to report positive growth in 2024. The downward trend of interest rate cuts has reinforced an optimistic outlook amongst investors, with some activity observed in the GTA as capital-rich investors looked to get ahead of the much-anticipated pick-up in the market. Furthermore, according to Altus Group’s latest Canadian CRE industry conditions and sentiment survey, investor sentiment remains positive for multifamily properties, with 72% of respondents expecting strong performance over the next 12 months, a 3% increase quarter-over-quarter.

The retail sector reported $2.1 billion in dollar volume transacted, a 20% decrease year-over-year. Canadians were conservative with their spending and prioritized essential goods and services as concerns surrounding higher costs of living and inflation lingered. Investors adapted to these changes in consumer behaviour by strategically acquiring select retail formats, such as neighbourhood and regional shopping centres, primarily centres with grocery anchors or redevelopment opportunities. According to Altus Group’s most recent CRE Investment Trends Survey, food-anchored retail strips were investors' most preferred property type in the Toronto market.

The hotel sector reported $552 million in dollar volume in 2024, more than double the dollar volume transacted compared to the previous year. This increase was primarily attributed to InnVest Hotels acquiring a hotel portfolio from Morguard in January 2024, which sold two properties to Manga Hotels shortly after. After this series of transactions, investment activity moderated in the subsequent quarters, with $62 million in dollar volume transacted between the second and fourth quarters of 2024.

The land (residential and ICI land) sector recorded nearly $5.4 billion in dollar volume transacted, a 24% decrease year-over-year. The residential land and lots sector recorded $3.4 billion in dollar volume transacted, and the ICI land sector recorded $2 billion in dollar volume transacted, a 19% and 32% decrease year-over-year, respectively. Developers continued to wait on the sidelines as more promising borrowing conditions are expected in 2025.

Figure 2 - Greater Toronto Area property transactions by asset class (2023 vs. 2024)

Notable transactions for Q4 2024

The following are the notable transactions for the Q4 2024 Toronto commercial real estate market:

1795, 2021, 2111 Steeles Avenue East; 10 & 12 Melanie Drive – Industrial

Representing the largest industrial transaction of the fourth quarter, Canadian Tire Corporation sold this 90-acre, 1.6 million distribution centre in Brampton for $258.1 million. The property was purchased by American-based Prologis, representing a price per square foot of $160. Prologis has expressed plans to redevelop the site, with a leaseback arrangement allowing the Canadian Tire distribution centre to continue operations on a temporary basis.

7900 Airport Road – Industrial

Unilever acquired this Brampton warehouse from H&R REIT for approximately $121.4 million. It has a gross floor area of 744,000 square feet and a price per square foot of $163. The building is positioned on almost 35 acres, is LEED Gold-certified, and serves as a major hub for Unilever's Canadian operations. This marks Unilever's second major purchase in the GTA, having previously acquired an Etobicoke facility at 195 Belfield Road in September 2022 for $26.4 million.

Millcreek Business Centre – Industrial

Soneil Investments purchased this portfolio of seven industrial properties in Mississauga for $104 million. The buildings were acquired in a single transaction from GWL Realty Advisors and contain 324,362 square feet on approximately 20 acres of land. The portfolio was 92% occupied by 31 tenants, with a weighted average lease term of 3.54 years and average rents approximately 18% below market. This purchase marks the second major transaction of the year for Soneil Investments, the local company is focused on growing its industrial real estate footprint in the GTA.

1475 Whites Road – Apartment

Starlight Investments and BGO acquired this newly constructed multifamily property for $127 million, representing the quarter's largest apartment transaction. Located in Pickering, the 12-storey building features 227 suites with modern amenities like EV charging stations and a fitness centre. The building sits on a 2.47-acre site and was purchased for a price per unit of $559,917. This acquisition expands Starlight Investments and BGO’s existing joint venture, now valued at over $600 million.

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

In 2024, despite the challenges weighing on the GTA’s recovery, the multifamily sector managed to outperform the previous year, as investor sentiment remained resilient for multifamily properties. Moreover, continuing the previous year’s trend, the GTA’s industrial sector reported the highest investment volume in 2024, accounting for nearly a third of the total dollar volume, despite the easing conditions in the sector. Looking ahead, a slow but gradual recovery is expected for the GTA as investors anticipate the benefits of lower borrowing costs and navigate geopolitical uncertainty and economic slowdown.

View the Toronto CRE market update for Q3 2024

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