In 2024, commercial real estate investment is expected to return to levels seen in 2020, but with a notable shift in priorities. While office and retail properties used to dominate the market, today's investors are increasingly turning to multi-residential and industrial assets—often referred to as "Beds & Sheds."

The buyer landscape has also evolved. Private investors and owner-occupiers are taking the lead, as institutional buyers like pension funds and public REITs sit on the sidelines or selling. These larger players are waiting for more stability in the market, while private investors are still actively looking for long-term opportunities, often using alternative financing options to navigate higher borrowing costs. Owner-occupiers are also staying active, using historically low interest rates to buy properties and avoid rising rents.

Capital Markets: Struggling to Set Prices in a Sparse Transaction Market

With sales activity slowing down in 2024, it's hard to get a clear read on prices. Cap rates for Toronto real estate are estimated to range from 4.3% to 7.6%, but with fewer transactions happening this year, it's tough to know if this range will hold. Over the past year, REITs have been the main sellers, exceeding their 5-year average in volume. As they continue rebalancing their portfolios, they’ll likely play a bigger role in the Seller’s market over the next year.

Multifamily Properties: Softening in the GTA Market

The multifamily market in the Greater Toronto Area (GTA) has started to soften recently. Demand is still strong, largely due to population growth, but rents seem to have hit a ceiling, as wage growth isn't keeping up with rental inflation. In some cases, especially in high-end units, rents are even starting to dip as landlords deal with rising vacancies. Vacancy rates are still relatively low at 2.0%, but this is up from a 3-year low of 0.9%. High interest rates and rent limitations due to stagnant wages are making multifamily development trickier to pull off.

Retail: Strong Demand, Limited Supply

Retail in the GTA is benefiting from tight supply driven by a population boom that has outpaced inventory growth. Since 2016, retail space has increased by just under 4%, while the national population has grown by about 17%. With supply not keeping up with demand, the retail market is in a good spot. There was some concern about e-commerce hurting brick-and-mortar stores, but with limited new supply, the retail sector is holding up well.

Industrial Properties: Slower Leasing, Bifurcated Demand

The industrial market in the GTA has seen a slowdown in leasing activity, with rent growth slowing to 4.3% in 2024. The market is adjusting to post-pandemic conditions, along with a national economic slowdown. Construction is expected to ease as developers react to these shifts. However, there’s still solid demand for industrial buildings with clear heights over 35 feet, which have consistently seen positive net absorption since late 2020. Despite the overall slowdown in commercial real estate, the industrial sector remains strong, with industrial REITs continuing to deliver impressive returns—total returns have more than tripled since 2017.

Office Sector: Modest Leasing Activity, Weak Investment Appeal

Leasing activity in the office market remains below pre-pandemic levels, but net absorption has been picking up recently, with around 2.1 million square feet leased over the past year, compared to a low of -4.0 million square feet in recent years. While annual rent growth is modest at 0.9%, this number doesn’t fully capture the amount of inducements—like rent-free periods and tenant improvement allowances—that landlords are offering to attract tenants.

Now might be a great time for tenants to renegotiate their lease terms. By acting early, you can lock in the best rates, incentives, and concessions for the next 5 years.

Why Work With Us?

With the market in flux, partnering with an experienced real estate advisor is key to navigating the current landscape and finding the best opportunities.

With over 30 years of experience in commercial real estate, we’re here to help you reduce risk and find options that work for you. We also collaborate with both retail and institutional investors looking to grow and protect their wealth through smart commercial real estate investments.

If you're considering making changes to your real estate strategy or exploring passive investment opportunities, we’re here to guide you every step of the way.

Start today by visiting our website at www.paramountrealestate.ca or watch our video below to learn more about how we can partner with you in growing your business.