Q4 2023 Market Report

Overview

Looking back at the close of 2023, let’s examine how the commercial real estate market fared in the last quarter and what we can expect moving into 2024.

The highlights in the industrial market were net absorption rates and sales price growth. Net absorption rates in the Greater Toronto and Hamilton Area (GTHA) have predominantly been negative, reaching a total of -206,721 this quarter.  This suggests a potential softening in the industrial market, pointing towards a probable decline in rental rates in the upcoming year. Concerning the average sale price per square foot in the GTHA, there was a 3% increase observed throughout 2023. This growth, while present, appears modest when compared to the preceding two years. A notable contrast can be drawn when looking at 2022 alone, which witnessed a substantial 24% surge in the average sale price per square foot. This highlights a noticeable stagnation in growth. In the past three years, the industrial market experienced an unprecedented boom; however, it appears that this trend is now tapering off, and we anticipate a potential correction or market balancing in 2024.

Office vacancy rates increased compared to Q3 2023 and remain high relative to pre-pandemic levels. Sublease opportunities remain abundant, with numerous markets showcasing 10-25% of their office space availability through subleases. The possibility of returning to a pre-pandemic office market seems unlikely, signaling a potential shift to a new normal. Despite prevailing challenges, office sale prices continue to demonstrate modest growth, achieving a 2.1% increase this quarter.

Land sales persist at a slow pace, playing a role in the stagnant prices observed across the GTHA. There’s a possibility that stability in interest rates could stimulate an uptick in volume. However, considering the substantial ongoing and planned industrial development over the next two years, it remains uncertain whether there will be an increased appetite for ICI (Industrial, Commercial, and Institutional) land in the coming year.