Outlook remains mixed for property valuations, CRE financing
Industrial landlords in the Greater Toronto Area (GTA) are filling more space, but rents continue to fall, creating a mixed outlook for property valuations and commercial real estate financing.
Average asking net rents fell to $16.06 per square foot in the third quarter of 2026, down 4.8% from a year earlier, according to Avison Young's latest industrial market report. Meanwhile, vacancy declined to 2.6%, from 2.7% in the previous quarter and 3.2% a year earlier.
The gap between improving occupancy and falling rents matters for property owners seeking financing or refinancing, as stronger leasing does not necessarily mean higher rental income.
Despite the decline, GTA industrial rents remain 38% above levels recorded five years ago.
Demand for industrial space continued to grow, with net absorption reaching 2.2 million square feet during the quarter and 11.2 million square feet year to date. Logistics and distribution companies led leasing activity, with manufacturers, technology and pharmaceutical firms, consumer goods businesses, and retailers also contributing.
Major transactions included LG Electronics' 980,800-square-foot lease in King City, Brewers Retail's 679,400-square-foot lease in Milton and Amazon's 246,000-square-foot lease in Brampton.
However, leasing conditions varied across the GTA. The North recorded the lowest vacancy rate at 2.0% and the highest average asking net rent at $17.63 per square foot. In contrast, vacancy in the East remained elevated at 5.0%, despite a slight quarterly decline.
GTA Central was the only region where vacancy increased, rising 20 basis points to 2.4%, while GTA West recorded the largest improvement, with vacancy falling 30 basis points to 2.6%. These differences highlight the importance of local market conditions when assessing industrial property income and valuations.
Beyond location, property specifications are also influencing tenant demand. Industrial buildings with clear heights of at least 30 feet commanded average asking net rents of $16.84 per square foot, compared with $14.86 for buildings with clear heights of 18 to 21 feet. Avison Young linked this preference to businesses seeking more efficient facilities to meet changing supply-chain needs.
Industrial construction has also slowed across the GTA, reflecting broader Canadian industrial development trends.
Space under construction fell to 5.9 million square feet across 28 buildings at the end of September, down from 10.8 million square feet in the previous quarter. Active construction represented just 0.6% of the GTA's existing industrial inventory.
Another 48 million square feet remained in the pre-construction pipeline, but only 1% had been pre-leased. Avison Young said the limited tenant commitments suggest developers remain cautious about advancing projects without sufficient demand. Earlier reporting on Canada's industrial construction pipeline also examined the slowdown in development activity.
The 1.3 million square feet completed during the quarter had a combined vacancy rate of 12% upon delivery.
Meanwhile, industrial property sale prices moved in the opposite direction to rents, rising to an average of $378 per square foot from $355 in the previous quarter.
