TREB Commercial Review and Outlook

Despite some headwinds due to some international trade uncertainties, Canadian economic conditions in 2019 were conducive to a healthy commercial real estate market. Canadian Gross Domestic Product grew moderately in 2019, which supported continued job creation across most sectors of the Greater Toronto Area (GTA) economy. Strong job creation kept the unemployment rate very low from a historic perspective, which arguably translated into growth in wages and salaries at or above the rate of inflation last year. Tight labour market conditions and a positive trend in incomes suggest that many GTA businesses are operating at or near capacity. The most recent Bank of Canada Business Outlook Survey showed that overall business confidence improved over the course of 2019, with many businesses reporting the need to bring on more employees and to continue their capital investment programs, as pressures on production capacity continued to mount. When businesses indicate the need for more employees and capital investment, this often translates into the need for additional space within which to house the production of goods and services.

Against this backdrop, the demand for commercial space, both in the leasing and sale markets remained strong in 2019 and should remain strong through 2020.

Commercial Leasing

In calendar year 2019, just under 25 million square feet of combined industrial, commercial/retail and office space was leased through TREB’s MLS® System. This represented a slight 1.5 per cent decrease compared to the amount of commercial space leased in 2018.

Typically, the vast majority of commercial space leased through TREB’s MLS® System comes from the industrial market segment. This continued to be the case in 2019 as the industrial leasing segment accounted for approximately 70 per cent of all commercial space leased. The industrial share of leasing in 2019 was slightly lower compared to 2018. The total amount of industrial space leased declined by 5.6 per cent on a yearover-year basis. This decline in industrial space leased can be attributed to a 7.3 per cent decrease in the average size of industrial transactions in 2019 compared to 2018, as spaces leased through TREB’s MLS® System were smaller relative to last year. Smaller spaces include investor-owned units in industrial condominiums, which provide a more flexible option for smaller companies.

Conversely, there was a strong year-over-year increase in the amount of commercial/retail space leased in 2019. 2,948,869 square feet of commercial/retail space was leased in 2019 – up 12.9 per cent compared to 2018. This robust increase of commercial/retail space leased indicated that retail businesses saw continued growth in the GTA on the back of a solid customer base that continues to grow because of a steady influx of population into the region and who are willing to spend on a variety of goods and services. The positive labour market conditions discussed above were conducive to strong consumer confidence, which underpins spending on retail goods and services. Growth in retail leasing has been sustained over the past few years, with the strong 2019 result preceded by a 6.1 per cent annual rate of growth in commercial/retail leasing in 2018. In terms of space leased, office leasing activity also picked substantially in 2019. Office space leased through TREB’s MLS® System was up by 6.9 per cent over 2018 to 4,631,741 square feet. This increase follows the fact that the Toronto area has become a centre for growth in finance, professional, technology and other high-order service sectors. In all likelihood, the region’s economic base will continue to evolve towards sectors that require some type of office space. With this in mind, it is not surprising to see strong growth in office leasing. It is also reasonable to assume that this growth will continue moving forward, barring a broader economic shock impacting the Canadian economy as a whole.

Commercial Property Sales

Commercial property sales through TREB’s MLS® System were slightly up compared to 2018. A combined 1,191 industrial, commercial/retail and office properties were sold in 2019 – up 0.3 per cent from 1,187 properties sold in 2018. Industrial property sales were down by 0.2 per cent on a year-over-year basis, with 454 sales. The office segment experienced an annual decrease of 7.2 per cent to 257 properties sold. The commercial/ retail segment experienced a jump in sales with a 5.5 per cent year-over-year to 480 transactions.

According to sales data entered into TREB’s MLS® System, the most popular size range of units sold amongst the three commercial segments was between 1,000–5,000 square feet, representing 56 per cent of all commercial sales. In this size range, the average size of commercial/retail units sold was 2,336 square feet, the average size of industrial units sold was 2,454 square feet and the average size of sold office space was 2,106 square feet. It is important to note that the most popular sized range of units sold entered into TREB’s MLS® System in 2019 was the exact same as both 2018 and 2017. These types of mid-sized units have become an attractive investment for both smalland medium-sized businesses looking to capitalize on the hiring pool of the talented workforce that is found in the GTA, as well as the proximity to a large consumer base to sell products and services. Positive labour market conditions and growing wages and salaries, on average, have served to bolster consumer confidence, and by extension, spending on retail goods. As the population of the GTA continues to grow, it is reasonable to assume that many population serving businesses will have the opportunity to expand. Many of these business owners may seek to invest in commercial/retail property. In addition, investors may choose to make investments in order to lease space to expanding businesses.

*Figures summarize total industrial, commercial/retail, and office square feet sales through TREB’s MLS® System, regardless of pricing terms.