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Toronto’s Commercial Real Estate Update

Historic fairmont royal york hotel amidst modern skyscrapers in a downtown cityscape.

An Altus Group study found that, in the final quarter of 2023, the Greater Toronto Area (GTA) witnessed a total dollar volume of $22.8 billion in 2023’s final quarter, showing a drop of roughly 25% compared to the year before. Despite this slight deceleration, Toronto has kept its place as one of the top three markets for investors; Vancouver and Ottawa are the other leaders.

The industrial sector maintained stability, with $7.6 billion in dollar volume transacted, showing a marginal increase year-over-year, while the hotel sector exhibited signs of recovery, with $202 million in dollar volume transacted, for a significant 24% increase compared to the previous year.

On the other hand, the retail sector saw a downturn, reporting $2.6 billion in dollar volume transacted, an 8% decrease year-over-year.  

Moreover, the office sector experienced a more significant decline, recording $3 billion in transactions, marking a 21% decrease compared to the previous year. There was a large increase in the downtown office vacancy rate, which rose by 160 basis points to reach 17.4%, which may have been exacerbated by the addition of new space to the market. The construction of 1.1 million square feet of new office space in downtown Toronto throughout 2023 resulted in a negative net absorption of 2.7 million square feet. However, the quality of office space is a notable factor in demand; it is anticipated by some that high-end office spaces will be the first to rebound.

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Recovery Anticipated

Some experts are expecting more positive trends in 2024. Private and institutional investors are still buying and being involved in the commercial real estate market, so increased transaction volumes may result in 2024.

The Bank of Canada (BoC) is currently maintaining stable interest rates. However, some analysts predict a decrease in rates in 2024, leading to an increase in investment activity, especially in the latter part of the year. A stabilization in interest rates is expected to boost investor confidence and stimulate more normal levels of deal-making. However, if inflation and economic growth differ from the Bank’s projections, any rate cuts may be delayed. 

Current proposals for commercial or mixed-use properties include one for Bayview. A proposal submitted to the City of Toronto details plans for a transit-friendly mixed-use development in Bayview Village. The project includes 36 and 46-storey residential towers with a shared podium, providing 860 residential units and 4618 square metres of retail space. The development offers various unit types, with over 25% allocated to two- and three-bedroom units, in line with the City’s Growing Up Guidelines. Additionally, there will be 2649 square metres of amenity space, split between indoor and outdoor areas, with a significant portion on a rooftop at Level 6. The first two levels will accommodate a 4618 square metre elementary school, with offices, classrooms, a gym, and other facilities, along with a new schoolyard.

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