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Toronto CRE Could Have A Hard Time Topping A Record-Setting 2017

The two-tower CIBC Square was one of 2017's biggest GTA developments.

Toronto has a long way to go to match an unprecedented 2017, but will still be active in 2018, according to a 2018 real estate forecast report. 

The Avison Young 2018 Forecast report, which looks at North American and European markets, found the greater Toronto area set benchmarks for low office and industrial vacancy, high leasing velocity and investment volume and noteworthy development starts in 2017.

“The record-breaking 2017 sets the bar high for 2018,” Avison Young Canadian Research Principal and Practice Leader Bill Argeropoulos said. “We have lofty goals to accomplish this year.”

The report points to a gulf between the landlord-favouring downtown (2.6% vacancy in Q4) and tenant-favouring suburbs. It predicts low vacancy and rising rents may mute new lease transactions this year, with a greater emphasis on renewals, while new developments like 16 York St. and CIBC Square will continue. 

It also concludes that the suburbs, with abundant affordable options, may be the chief beneficiary of tight conditions downtown in 2018.

“It’s a landlord’s market until we see an oversupply product or some external economic event changes the mindset of tenants and landlords,” Argeropoulos said.

The industrial market remained in high demand and undersupplied despite ongoing delivery of new product in 2017. The report predicts the repurposing of outdated assets will continue in 2018 while developers secure land. 

In retail, the report concludes that years of investment in upgrades have started to pay off for major mall owners. It predicts the repurposing of large retail spaces for other uses will be a trend to watch. 

“The retail sector will also have to contend with increased costs due to a hike in the minimum wage, with street-front retail being the most vulnerable,” Argeropoulos said. 

Avison Young Canadian Research Principal and Practice Leader Bill Argeropoulos

As for Toronto investment, 2017's more than $13B total investment volume surpassed the previous year’s record $12B. 

“Scarcity of product is pushing some investors toward more challenged assets — and/or locations (especially those well-served by transit) — to capitalize on redevelopment or future growth, requiring buyers to assume more risk,” according to the report.

Argeropoulos said Canada’s image worldwide remains a positive one when it comes to investment. 

“Canada is seen as a safe place to put your money. Toronto is earning the respect of global investors, and it can truly be considered a global city.”