Latest GTA Industrial Real Estate Report - Q2 2025

A little late on posting this one here, but below is my narrative on the industrial real estate market in the GTA within the Toronto area, as of our industrial real estate report for Q2 2025.

OVERVIEW

If Q1 of 2025 could be characterized as a market in pause, Q2 brought the first real signs that the industrial sector in the GTA may be gradually shaking off the uncertainty and beginning to move forward again, albeit under market conditions that continue to soften. While the clouds of economic ambiguity still linger—most notably due to ongoing trade tensions with the United States—the tone across the market has started to shift from “wait-and-see” to “selective action.”

That’s not to say market fundamentals are charging ahead. Vacancy continued to rise, net lease rates edged downward, and sales volume remains well below recent peaks. But the mood among landlords, occupiers, and even some investors is one of cautious engagement rather than full retreat. It feels, for the first time in several quarters, like the market is searching for a new equilibrium instead of being paralyzed by uncertainty.

Though many challenges remain, there are signs that decision-makers—be they tenants, buyers, or owners—are becoming more comfortable making moves again, even if those moves are smaller, more deliberate, and highly sensitive to deal structure.

Anecdotally, though the market tends to quiet down with less transaction activity starting in June due to onset of vacation season, brokers are reporting an uptick in deal activity within the last few weeks – both in leasing and sales. This may be a coincidental outlier, though time will tell if it represents a more meaningful shift in sentiment among market players who have been deferring decisions but are now ready to jump off the sidelines.

LEASING

The GTA industrial leasing market continued to experience softness in Q2, with the vacancy rate rising once again—this time to 4.4%, up from 3.7% in Q1 and 2.7% in Q4 of last year. This marks a continued - and recently more pronounced - increase in vacancy in this cycle and signals that the market may still be absorbing both excess space and economic hesitation.

Much of this increase continues to be driven by large-bay product in outer markets—namely the GTA West and East regions—where new developments approved in the aggressive 2021–2022 cycle are still coming online. But vacancy rose across all submarkets, and even smaller bay properties (sub-50,000 SF) are beginning to feel the weight of slower leasing activity.

Average asking net lease rates fell again to $16.82 PSF, continuing a downward trend and a fourth consecutive decline from a high of $18.11 from exactly one year ago. While still significantly elevated relative to pre-COVID norms, the pace of erosion in asking rents appears steady and consistent, and it’s becoming more common to see properties linger on the market or to require meaningful concessions to get deals done.

Tenant sentiment remains cautious. Many are postponing relocations or expansions unless necessary, particularly as they await clarity on the macroeconomic outlook and the full impact of new cross-border trade policies. However, with more options available and landlord expectations beginning to reset, tenants that are active in the market are finding improved negotiating leverage.

SALES

On the sales side, the GTA industrial market continues to reflect the broader sense of caution. Total transaction volume for Q2 came in at $890.9 million, a decrease from Q1’s $1.19 billion, and still well off the $2–3 billion quarterly averages of 2022 and 2023.

While sales volume has been on a gradual downtrend over the last several quarters, sale pricing was remarkably stable throughout 2024 and in the first quarter of 2025. However, that stability has fractured slightly in this latest quarter, with the average industrial property sale price per square foot across all asset sizes GTA-wide dropping to $339 PSF from $358 PSF in Q1*. This represents the first material drop since a rapid run-up in pricing from 2020 to 2023 and then flat pricing throughout 2024 and early 2025.

*Note these numbers represent aggregated averages across the entire Southern Ontario region, and specific sub-markets as well as specific properties may deviate significantly from these numbers.

Time will tell whether this drop in the average sale price is the start of a downward trajectory or just a minor blip in what has until now been extremely “sticky” pricing on the sales side of things. The reality remains that pricing continues to be driven by a simple lack of distress. Most industrial owners in the GTA are well-capitalized, carry little debt, and are not under pressure to sell. As a result, listings are limited and sellers who do bring product to market remain firm on their pricing expectations. Meanwhile, buyers—particularly occupiers—are active but highly price-sensitive, often requiring creative deal structures, favourable financing, or a too-good-to-pass-up property to move forward.

There is still very little investor activity, and that’s unlikely to change until borrowing costs come down further or cap rates move meaningfully. For now, the sale market remains a space dominated by users with specific operational needs and long-term horizons.

LOOKING AHEAD

If Q1 was about paralysis, Q2 was about recalibration. Market players are adjusting expectations, getting more comfortable with new norms, and beginning to transact again—albeit selectively. With construction starts continuing to decline and interest rate cuts on the horizon (though seemingly delayed for the time being), there’s a growing sense that the worst may be behind us.

That said, uncertainty—especially geopolitical and policy-driven—continues to hover over the market. As always, it will be confidence, not just capital, that drives the next upswing. And for now, confidence is still in short supply, but it’s no longer absent altogether.