Toronto Outlook 2024

January 22, 2024 4 Minute Read

Toronto skyline with CN Tower and Rogers Centre

2024 | Real Estate Outlook Series


Canada’s biggest city has bounced back post-pandemic, but its office market continues to face challenges.

Despite the flurry of office leasing deals getting done in Toronto, the city’s central downtown office vacancy rate continues to rise, hitting 17.4% in the final quarter of 2023.
That’s a new record high for the downtown office market. (Vacancy dipped slightly in the suburbs, to 20.3%).

We checked in with CBRE’s Downtown Toronto Research Manager Shekhar Bhardwaj to see what office market trends he’ll be tracking in 2024.

The biggest thing I’ll be watching for is increasing vacancy and the rate of that increase. Vacancy keeps reaching new highs.

While the increases could peak in the second quarter and begin to recover as the Bank of Canada and Fed start cutting rates, it’s unclear how a slowing economy impacts this recovery. Rising confidence and employment could boost office occupancy. An economic slowdown could make employment more precarious and also bring people back to the office if companies maintain their footprint.

Beyond the near-term, it is clear that there is a an important role for office space. -Shekhar Bhardwaj

Beyond the near-term, it is clear that there is an important role for office space. I would suggest that companies keep an eye to the future when making decisions and renewing or keeping their office space. This moment in time won’t last forever.

That said, companies probably won’t lease more space than they had before as office usage has fundamentally shifted. The recovery won’t be that amazing nor will the sky fall. I can see 10% to 12% eventually becoming the new normal for downtown office vacancy, but maybe not this year.

As far as supply goes, we’re down to 4.3 million square feet under construction. I don’t expect any new developments to kick off. I do expect developments to complete while being mostly vacant, not pre-leased. Developments in 2017 or 2018  were typically fully pre-leased. That’s no longer the case.

We’re not expecting to see a lot of office conversions to residential buildings in downtown Toronto. It’s just not feasible to convert these buildings into residential. In many cases it’s cheaper to do new construction versus converting a building that’s not fit for that use.

Class C buildings, the most antiquated office stock, which had floated up with the high tide before, represents as much as 10 million square feet of office space in downtown Toronto. And those buildings are severely challenged at the moment and will continue to be challenged when it comes to attracting tenants.

Industrial buildings in the GTA


In a year that saw delivery of a whopping 16.9 million square feet of new industrial space – a record high – the availability rate rose to 2.7% in Q4 2023, territory the GTA industrial market hasn’t been in since 2017.

CBRE Toronto West Managing Director Adrian Lee offers his thoughts on the forces that will shape the market this year.

We saw a real shift in industrial market dynamics in 2023. Rental growth stabilized while market tightness alleviated, due to the delivery of new construction being the highest it has ever been. However, we’re certainly not at the point where there’s oversupply yet.

Although new construction product peaked in 2023, developers remain motivated to build, and so the market will continue to see new product hit the market at elevated levels higher than the years prior to 2023, giving tenants more selection and the opportunity to occupy modern Class-A warehouse space.

2023 was a year of discovery and 2024 will be a year of stability, now that interest rates have stabilized and inflation is under control. - Adrian Lee

Industrial rental rates will remain strong and are not expected to decrease to any notable degree, primarily from better product available to the market than historically seen. Additionally, renewal rates notably remain at all-time highs.

Despite more large bay offerings, leasing velocity for large bay tenants remains near all-time high levels. Less net new deals are occurring, as more tenants are opting to renew. We’re also seeing developers’ flexibility, with most electing to subdivide their space to lease out the space quicker.

2023 was a year of discovery and I see 2024 being a year of stability. Now that interest rates have stabilized and we’re seeing inflation under control, all that will help the industrial market. Look for an uptick in sale activity for both warehouses and land.

The automotive industry will continue to be a driver of industrial growth this year. Electric vehicle plants, some of them are taking as much as 400,000 square feet. Like the Volkswagen EV battery plant in St. Thomas, Ont. That will have spinoffs and supply chain investments throughout Southwestern Ontario and the GTA, adding to the resurgence of the automotive sector.

The GTA is the epicentre of industrial real estate activity, and now with things reaching an equilibrium after a crazed period of pandemic-induced growth, I see only great things ahead for the market this year.

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