Article

Toronto Retail Rents Rise Amid Short Supply and Tenacious Consumers

September 17, 2024 3 Minute Read

Retail Rent Survey
Jackson Turner standing in front of Starbucks

Quality retail spaces are in short supply in Toronto and rents continue to rise as landlords cope with inflation, higher interest rates and property tax increases.

That’s according to CBRE’s Retail Rent Survey, which notes that the city's key retail nodes such as Bloor-Yorkville, King Street West and Ossington Avenue are as popular as ever with shoppers and diners opting for experiences, helping to propel net asking rental rates higher.

This could pose challenges for smaller retailers looking to locate or remain in these nodes, and some tenants have been widening their search to include areas farther outside Toronto’s traditional core markets, such as Canary District in the city’s east end or Galleria on the Park in the west end.

But CBRE Senior Vice President Jackson Turner says many retail tenants are choosing to stay put despite the rental increases.

“Most tenants expect rents to go up at the end of a lease term,” he says. “As long as these are reasonable increases, they expect it. They realize inflation has put upward pressure on rents, so in general tenants are open to the idea of rental rate increases.”

The flip side, of course, is that there are retail groups barely getting by at the moment, and if the landlord comes seeking an outrageous rental increase in a bid to offset mortgage costs, Turner says, “they might not be able to keep their business going. They might be forced to close.”

Cheaper to Stay

Locating elsewhere for cheaper rent is one option. But building out a new space amid today’s high construction costs will squeeze a tenants’ margins “as low as possible,” Turner says. So tenants have been willing to renew their lease at a higher rent rather than paying to build out a new location.

It works both ways, with landlords in some cases considering giving a tenant a slight decrease in rent because it’s not worth the churn and the downtime for that space if the tenant were to give it back.

“It’s really about the relationship between the landlord and tenant,” Turner says. “if there’s a good relationship both parties will generally be reasonable and get something done. If one party is unreasonable, you’re talking about a process that could drag out for months in arbitration.”

Short Supply

Complicating matters is the fact that, according to CBRE’s Retail Rent Survey, fewer retail spaces have been coming onto the market, with developments being put on pause for several years as investors wait for construction costs and interest rates to moderate and for residential condo sales to recover.

“So fixtured second-generation storefront or restaurant spaces are in demand and those are the ones seeing rents increase,” says Turner. “It’s a lot to do with the construction costs; no one wants to build out brand new raw space. People are willing to pay a premium to rent second-generation or quasi-fixtured spaces.”

There is pain out there, and shoppers and diners are being tighter with spending. But areas like King West and Ossington act as hubs for those with means and are not seeing it as much, which could help to explain their rent increases.

“A lot of young people want to spend money on experiences, dinner and drinks – on going out, and on services like botox, nails and hair,” Turner says. “People living in downtown Toronto are not willing to cut out the day-to-day essentials or wants.”

That’s good news for both landlords and retailers.

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