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Toronto's Real Estate markets are beginning to recover from the effects of overbuilding, reduced consumer spending and corporate restructuring among public development companies.

While development activity remains selective, the city's commercial, industrial and investment markets have stabilized. Improved consumer confidence, a competitive Canadian dollar and low interest rates should provide for continued stability in most sectors.

Office market

The effects of overbuilding in the 1980s continue to plague Toronto's office market. However, there are positive signs, particularly in the city's financial core. During 1994, recovery occurred downtown at the expense of suburban markets. According to CB Commercial Real Estate, the downtown market experienced the single largest decrease in supply, due to residential conversions and tenants migrating from lower quality buildings into affordable high-quality Class-A space.

Currently, the vacancy rate has dropped to about 19.5% from just over 21% last year. The brokerage firm reports that "residential conversions actually were greater than new supply, thereby decreasing the aggregate supply number." In total, less than 1 million sq. ft. of space was added in 1993 and 1994.

CB Commercial reports that the rate within the city's financial core has dropped by nearly six percentage points to 10.34% during the last four quarters. Overall, the Metropolitan Toronto vacancy rate showed a slight improvement at about 17%.

Similar to many North American cities, corporate migration to Toronto suburbs increased exponentially from 1985-1994, when supply grew by over 20 million sq. ft. Most of this new inventory was absorbed by tenants seeking to reduce operating costs incurred by occupancy in Class-A buildings downtown.

As of 1994, the availability of affordable Class-A space in Toronto's downtown core negatively affected suburban vacancy rates. In effect, the "suburban trend" had reversed as tenants moved back into the city's financial core where rental rates were competitive.

Net effective rental rates in suburban markets are expected to rise from a low in 1993/1994 of $2.45 per sq. ft. to approximately $3.50 during 1996.

Retail market

Success in retailing now appears to be determined by size. Construction of traditional regional malls and community centers has ceased, as consumers are motivated by price and selection. This has attracted "big box" retailers to Toronto. CB Commercial surveyed these chains and calculates that of the top 28 active big box retailers in Toronto, 26 are U.S. based. A growing number of home-grown retailers are emerging while others adapt their concepts to big box themes. They include The Future Shop, Collegiate Sports and Marks Work Wearhouse.

The consumer now demands better customer service, low pricing and improved selection. The big box retailers have responded, but some general merchandise department stores have been slower to react. Recently, the T. Eaton Co. Ltd., which operates 94 department stores across Canada, announced a $300 million "remodeling of all stores."

While the arrival of the power center is at least a welcome improvement, Toronto's core retail market remains dominated by regional shopping centers, community plazas and commercial zones at street level. Unlike many U.S. cities, rental rates among regionals and community plazas have remained relatively stable.

Overall, absorption is selective in Toronto, which is, according to CB Commercial's calculations, the third-largest retail center in North America, offering about 10 million sq. ft. of retail space.


A competitive Canadian dollar and increased manufacturing activity have stimulated absorption of industrial space. The vacancy rate is currently at about 15% and is anticipated to decrease to 12% by 1996. Lease rates also are higher at just below $3 per sq. ft. in 1996. CB Commercial projects that prices for serviced industrial land will increase marginally this year and in 1996. Currently, land prices in both the east and west suburban markets range from $180,000 per acre to just above $200,000 per acre. The west suburban market remains overbuilt, while northern and eastern areas are likely to increase marginally. Well-financed build-to-suit projects continue to dominate the market.

While limited by the Municipal Act, many cities surrounding metropolitan Toronto are beginning to promote lower area taxes through competitive advertising campaigns. Not only do these promotions emphasize zoned and available land, they also capitalize upon central Toronto's lack of new, functional buildings.


More than $100 billion in assets were lost in the collapse of the Canadian real estate market in 1991. This really means that property has been transferred from shareholders to finance companies, pension funds and bond holders. Pension funds, including Caisse de depot of Quebec and Omers of Toronto, are now the largest owners of commercial, industrial and retail property in Canada.

As a result, investors are reluctant to participate in real estate through acquisitions or by providing financing. Lower interest rates and relatively strong economic growth have not attracted significant investment in real estate, although residential multiunit projects are attracting foreign investors. Higher rents among rental units and the Provincial government's plan to withdraw from the nonprofit housing sector provide a partial explanation of renewed interest in large multiunit residential projects.

Toronto's real estate market shows positive signs of recovery. But, factors such as high national debt, weak consumer confidence and tight lending policies continue to affect absorption rates.

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