But will the trend continue? JLL report sees “uncertain” future
The downtown Toronto office market has just experienced its first decline in office availability in five years, according to JLLās Q4 2024 Toronto Office Insight report. It cites āaggressive concession packagesā by office owners as one contributing factor to the decline.
Whether that is a blip, or becomes a trend in the downtown market, remains to be seen.
JLL reports an availability rate of 20 per cent in downtown Toronto, a 30-basis-points reduction from Q3. Strong leasing activity in the quarter led to the reduction, although the total vacancy rate was flat at 18.2 per cent.
āDespite the addition of several large blocks of vacancy in the Financial Core and Downtown South, Downtown overall recorded positive net absorption in Q4, driven by over 152,000 square feet of positive absorption in the Trophy segment,ā the report states.
Year-over-year, the trophy and class-A segment market saw 1.2 per cent of net absorption as a percentage of total inventory. However, illustrating the ongoing and widening gulf between premium and non-premium properties – which JLL calls āfeast or famineā in the report – class-B and -C offices saw a negative net absorption of 5.6 per cent.
The downtown market has approximately 83.6 million square feet of inventory.
Large-scale leasing activity on the rise
JLL cites a series of large downtown leases coming due as another factor in the lower availability rate.
āLandlord concessions are helping to facilitate activity,ā the report states. āOne of the largest drivers of increasing leasing momentum has been large tenants opting in favour of renewals and extensions that have included aggressive concession packages.ā
The average direct net asking rent in the downtown was $36.73 during the quarter.
Among the largest relocation trophy and class-A deals were:
a 250,000-square-foot lease signed by Blake, Cassels & Graydon LLP at CIBC Square II which is scheduled for completion later this year;
an 89,000-square-foot deal at First Canadian Place by Interac; and
65,000 square feet leased at Blaney McMurtry LLP at Scotia Plaza.
Greenshield signed an 88,000-square-foot relocation lease to 30 Wellington St. W., which JLL lists as a class-B property.
Brookfield acquires 2 Queen St. E. tower
The report also notes one significant office transaction in the downtown during the fall, with Brookfield Properties buying out AIMCo and CPPIB to be the sole owner of 2 Queen St. E. That tower, which contains 477,000 square feet of space, sold for $161.3 million or $338 per square foot.
Looking ahead in the downtown, the report is non-committal about whether availability – and ultimately occupancy – will continue to decline.
āGiven Torontoās recovering labour market, landlord enthusiasm to get deals done, and more lease maturities coming to market, conditions are ripe for 2025 to be the best year in the office market since the pandemic,ā it states.
āYet whether the uptick in leasing velocity is a one-time event, or the beginning of a more enduring trend remains uncertain, and much will depend on how trade tensions with the U.S. unfold.ā
Citywide and other Toronto submarkets
Citywide, JLL reports a vacancy rate of 18.1 per cent and an availability rate of 19.9 per cent. On a year-over-year basis, there was 1.15 million square feet of negative absorption during 2024, an increase of 60 basis points.
There were almost 2.5 million square feet of new office completions during the quarter, with an additional 2.6 million square feet remaining under construction. All of the Q4 deliveries and the buildings under construction are class-A properties.
The current inventory citywide is 187.3 million square feet.
In other Toronto submarkets, Toronto West saw availability decline to 18.1 per cent and vacancy dip to 17.7 per cent from Q3, based on net absorption of about 68,000 square feet. Class-A properties led the decline.
Interestingly, sublease space fell significantly on a year-over-year basis, down 7.2 per cent, a reduction of over 540,000 square feet from its Q1 2023 peak.
GTA North and East saw availability decline to 20.5 per cent, and vacancy dip to 17 per cent in the quarter thanks to 84,060 square feet of absorption.
Southwestern Ontario vacancy rises
JLL also released itsĀ report for Southwestern Ontario, which covers the Kitchener, Waterloo, Guelph and Cambridge districts.
The market saw negative net absorption of 230,726 square feet in Q4, driving vacancy up 1.2 per cent to 15.3 per cent and availability to 16.8 per cent. It cites Googleās decision to consolidate some of its space, returning office space at 25 Water St., in Kitchener, as the main factor.
On the year, the region saw a slight 78,552-square-foot increase in absorption. It comprises 18.7 million square feet of inventory.
The report also notes an increase in sales activity, including the sale of the 605,938-square-foot Northfield Corporate Campus by Spear St., Capital to a numbered Ontario company. It is located along University Ave. East in Waterloo.
That $76.7-million transaction was driven, in part, by a desire to turn some of the campus space into a data centre, JLL states.
āVacancy, availability and rents are expected to remain stable,ā into 2025, the report states. āWe expect an abundance of short-term renewals heading into 2025, as relocation and construction costs remain high.ā
Data centres, seniors housing forecast as areas of strong growth
Prospects are promising for REITs in 2025 according to a new global report from Hazelview Investments.
For Canadian investors, the seniors housing market looks to be one of the brightest spots.
āWe think thereās a telling demographic for senior housing. We think the growth of the 80-plus-year-old population cohort is going to lead to strong demand for senior housing units and the lack of supply; the lack of new construction, is near a multi-year low,” Samuel Sahn, managing partner, portfolio manager for Toronto-based Hazelview, told RENX.
“That typically is a great recipe for success in growth in occupancy, growth in rents, growth in NOI margins, growth in EBITDA and growth in earnings.
āWhen we look at the landscape of 2025, we like the market broadly but in particular, we have a very favourable view of REITs.ā
That seniors population is projected to grow at a 4.8 per cent compound annual growth rate (CAGR) through 2042, according to Hazelviewās 2025 Global Public Real Estate Outlook report, citing figures from Cushman and Wakefield.
The sector was heavily affected during COVID but in 2024, it began to recover, according to Sahn. The turnaround is expected to gain more steam in the coming year.
āSenior housing, we think, has a lot more recovery potential because of what happened during COVID, because occupancy fell by so much, because rent obviously did soften, and operating margins got hurt from higher expenses as a result of all the things that operators needed to do to make their facilities COVID-compliant,ā Sahn explained.
Change in bank policy reverses fortunes
One of the biggest factors in this market recovery happened when world central banks āpivoted from tightening to easingā during the second half of 2024, he said. And it affected the wider REIT segment.
āWe think that shift in monetary policy created an inflection point for the sector and since then, weāve seen better performance out of REITs. Weāve seen an improvement in investor sentiment and our expectation is that after three years of underperformance for broad equities, the relative valuation characteristics and the absolute return potential of the asset class is extremely attractive.ā
Overall, the growth rate projected for REITs is impressive, the report states.
āAs we look forward to 2025, the big takeaway is the foundation and fundamentals, the attractive growth that the sector is going to deliver of over six per cent globally, combined with a better and more favourable rate environment and recovering asset value is going to cause REITs to generate a double-digit return over the next 12 months,ā Sahn said.
Globally, REITs generated a 4.6-per-cent return in 2024 – though it had been clipping along at 11.2 per cent for the first 11 months. The final number was tempered in December after the U.S. Federal Reserve signalled a more cautious stance for the next year, the report says.
āWhat stood out to me was when you look at the relative valuation of global resources, global equity, when you look at the landscape of investment opportunities around the world, REITs are trading near historic lows,” he said.
“They are trading at lower levels than the financial crisis. They are trading at lower levels than during COVID. Theyāre trading at lower levels than during the European debt crisis, and that relative valuation construct typically does not persist into perpetuity.”
According to the Hazelview report, the 2024 REIT rate of return bested bonds, which saw a loss of 1.7 per cent. However, this paled alongside the returns for equities, which stood at 19.2%.
In Canada, the value of REITs grew by 1.1 per cent last year.
Strong outlook for data centres
Another area that is primed for more growth this year, the report forecasts, is in data centre investment.
Leasing activity in North America grew by 58 per cent year-over-year and with the growth in demand for AI for example, this figure will go even higher, according to Hazelview.
āHyperscale customers are demanding bigger and bigger facilities. Itās putting stress on power and utilities, and thatās leading to higher rent. As we look at the landscape, weāre going to see more data centre development and we think thatās great for the companies that we can invest in that already own an existing portfolio,ā Sahn said.
While this growth looks to continue being strong, there are a few concerns for investors to be aware of.
āI think the only risk is that if they have trouble securing power to development projects that they were hoping to get off the ground, it may be delayed but generally weāre seeing tenants look to lease space two to three to four years ahead of when they think they may need,” Sahn observed. “So as of right now, the backlog looks pretty strong, but thatās something that municipalities, government and the industry are going to need to work on together.ā
“Now’s the time” for real estate investment
So what is the general advice to REIT investors for 2025?
āOur view is for investors who donāt have exposure to publicly listed real estate today, nowās the time to do so,” Sahn said.
“For investors who do have real estate exposure, or have exposure to REITs already, I think it warrants a review of what your overall allocation to REITs is, and if there is a potential for that allocation to increase, what investors should do is they should buy into the underperformance of an asset class because typically, what we see is reversion to the mean over time.”
While itās a long way from the boom of the past decade, Colliers’ Nicholas Kendrew doesnāt think the Greater Toronto Area (GTA) office market is in the dire situation that some people believe.
Activity for deals below $100 million has maintained a decent pace over the past five years and thereās been a āfairly liquid market,ā according to Kendrew, a senior vice-president with the brokerage and real estate services firm.
āI think the challenge right now is the bigger, more scale-driven product that’s a little less liquid in today’s market,ā Kendrew told RENX. āBut in terms of some of the more boutique assets we’ve been selling in the suburban markets, we’ve been getting similar pricing to before the pandemic.ā
An increase in organizations demanding that employees return to the office, improving lease renewal rates, and high build-out and replacement costs are contributing to this.
Yonge Corporate Centre and 3650 Victoria Park
There are two significant GTA office properties being marketed at the moment — at least via public processes — as Kendrew said most large owners arenāt in a rush to sell.
āI think a lot of these major investors are a little bit skittish because of the economic situation that Canada is in. Many groups would prefer to wait and see how the next few months play out with tariffs and the economy rather than rush to get something out that might not do well because of those economic uncertainties.ā
TD Cornerstone Commercial RealtyĀ andĀ CBREĀ are marketing theĀ Cadillac Fairview-owned Yonge Corporate Centre office campus on a 7.79-acre site atĀ 4100-4150 Yonge St. Itās comprised of three mid-rise office buildings totalling 649,808 square feet and a low-rise 7,992-square-foot heritage building housing theĀ Auberge de PommierĀ restaurant.
āThat will be a good benchmark for the rest of the market,ā Kendrew observed. āIām guessing that because this is the second time Cadillac Fairview has had it out with CB and TD, theyāre deeply committed to a sale transaction.
āIt will be an interesting one to watch because, from our general experience, a lot of private investors generally tap out at around $50 million to $75 million. There aren’t many private investors that can get to the kind of pricing that would do this deal.ā
While Kendrew said Yonge Corporate Centre is a āstellar location,ā he believes the likely purchaser will collect a few years of rent and then redevelop the complex.
Colliers is marketing a nine-storey, 154,384-square-foot class-A office building on 4.39 acres of land owned byĀ True North Commercial REITĀ atĀ 3650 Victoria Park Ave.Ā in North York. Known as The Spark, theĀ LEEDĀ Gold andĀ BOMA BESTĀ Gold-certified building is only about one-third occupied and is listed for $32 million.
āIt’s a dual stream process where a leasing team has the lease listing, and they’re trying to find tenants,ā Kendrew explained. āHowever, if a qualified owner-occupier stepped forward and wanted to buy the building, we’d sell on that basis.ā
Off-market transactions
There are rumours about potential off-market transactions and Kendrew said if they happen, theyāll likely involve bigger Canadian pension funds selling non-core assets.
āThere are a lot of groups that have said, āIf you have someone who would be willing to pay us this sort of pricing, we will certainly consider that.ā
āI think a lot of these bigger groups are concerned about the reputational risk of running a very public process and then not transacting, or (not) getting the price that they would have liked.ā
Differences in suburban assets
Colliers brokered the sale of recently built properties atĀ 1900 and 1908 Ironoak WayĀ in Oakville from Ironoak Way Limited Partnership to Binscarth Holdings for $35.25 million last summer. The twin two-storey office buildings combined for 101,697 square feet and were 97 per cent occupied.
āThe interesting thing we’re seeing, especially in suburban offices, is that a lot of the well-capitalized privates that would have bought either multifamily or industrial now think the pricing is perhaps a little frothy,ā Kendrew said.
āSo when you’re buying a brand new suburban office building for that sort of pricing with a seven per cent cap rate, and you’ve got 10-year lease terms and the rents go up every year, that feels like really good value to a lot of those private investors. It’s definitely because the buyer profiles have changed that’s helped keep pricing in line with where it was previously.ā
While the Ironoak Way properties sold for about $350 per square foot, Colliers also brokered last yearās receivership sale of an eight-storey, 222,285-square-foot office building with a high vacancy rate atĀ 55 Town Centre CourtĀ in Scarborough that sold for less than $78 per square foot.
It was originally listed for $39.5 million but was purchased by 1606555 Ontario Inc. for $17.25 million. Traditional financing wasnāt available because of the high vacancy rate and the capital needed to improve the building.
āLenders, if there is high vacancy or the lease terms aren’t that long, don’t want to go anywhere near it,ā Kendrew said. āSo you’re having to look at alternative forms of financing or even buying with cash.ā
5600 Cancross Court
Kendrew said thereās been huge demand for vacant office buildings under 100,000 square feet in both the suburbs and downtown.
Colliers is involved with the sale of a 37-year-old, two-storey, 99,780-square-foot office building atĀ 5600 Cancross Ct.Ā in Mississauga thatās scheduled to close at the end of the month for approximately $32 million. The property was on the market for about a year.
āIn a year that building will be entirely vacant with no cash flow,ā Kendrew said. āBut the buyer has an operating business and wants to move inside the whole building.ā
Owner-occupiers are active
Colliers brokered the sale of a vacant small suburban office building to a dental college for $315 per square foot in December 2023 because it was going to cost it more than $500 per square foot to build out its own space and it wouldnāt own it at the end of the lease.
āUsually these owner-occupiers are private entrepreneurs whoāve made a lot of their own money,ā Kendrew said. āThey’ve got great banking relationships and theyāve leased at least 10,000 square feet from a landlord, and they’re saying, āI should buy my building.ā
āIf you’ve got the right product that has good curb appeal, that long-term is going to be a going concern, a lot of groups are happy to pay a premium to secure the right space.ā
A similar thought process was likely behind recent downtown Toronto office building deals atĀ 438 University Ave.,Ā 522 University Ave.,Ā 2 Queen St. E.Ā and 25 Dockside Dr. ā which all involved owner-occupier acquisition elements.
Foreign owners are interested
Kendrew said thereās āa good cohortā of American and European investors interested in acquiring downtown Toronto office buildings.
āWhether it’s for residential conversion or industrial conversion, a lot of these office assets are going to be taken out of the inventory,ā Kendrew said. āSo I think a lot of privates and foreign groups are seeing that and they’re thinking now could be a really good time to get some of these high-quality assets.ā
The low Canadian dollar is also enticing for foreign buyers, but the types of properties theyāre seeking ā high-quality with long-term leases, a compelling environmental, social and governance story, and located close toĀ Union StationĀ ā havenāt been available.
Partners upgraded and almost fully leased Royal Court Medical Centre during past four years
Appelt Properties and Centurion Asset Management have sold their 112,000-square-foot Royal Court Medical Centre outpatient complex in Barrie, Ont. four years after acquiring the site and embarking on a program to upgrade the three buildings.
The property, which consists of three interlinked, three-storey buildings, was sold to Royal Victoria Hospital (RVH), which is adjacent to the six-acre site along Quarry Ridge Road and Gallie Court.
The purchase price was not released.
āWhen we purchased the medical buildings in 2020, there was a lot of work to be done and there was significant vacancy,ā Appelt president Greg Appelt told RENX in an email exchange.
āWe have since improved the buildings and fully leased the properties, so it was a natural time to crystalize the value that we had created for our investors.ā
The sale to Roya Victoria Hospital
Appelt called the hospital next door the ānaturalā buyer for Royal Court, especially considering it is undergoing a significant expansion to serve a rapidly growing population in the city, and the surrounding North Simcoe County and Muskoka regions.
āWe also liked that we were able to sell to the adjacent hospital,ā Appelt wrote. āThe RVH hospital serves more than 500,000 people in Barrie and the surrounding area and has half a million patient visits per year.
āThey are undergoing a $2.3-billion expansion and so it is important that they own the land adjacent to such critical infrastructure. The six-acre site that the medical buildings sit on will provide flexibility for RVH expansion for years to come.ā
The property also includes a surface parking lot with over 400 spaces.
The site is less than a kilometre from Highway 400, the main multi-lane route connecting Toronto, Barrie and Ontarioās cottage country to the north. Barrie is a city of over 100,000 about 70 kilometres north of Toronto.
The three buildings were completed in 2003, 2007 and 2018, reflecting the growth of the hospital and the region it serves.
Appelt said the facilities are 97.5 per cent leased.
Appelt to continue to manage Royal Court
“This sale is a testament to the strength of our strategy in acquiring and repositioning medical outpatient buildings across Canada,ā Appelt said in the release announcing the sale. āAs the largest private landlord of these facilities nationwide, we remain committed to expanding our portfolio and are actively seeking new opportunities to acquire medical properties across the country.”
The firm will remain as property manager for Royal Court.
Appelt is one of Canadaās largest private owners and operators of medical and health-related properties. It has operations in Ontario, British Columbia, Alberta and Manitoba.
“This building exemplifies the qualities we aim to achieve in all our assets ā exceptional location, robust tenant mix and alignment with community healthcare needs,ā Appelt said in the announcement. āWe are pleased to see it transition to the natural buyer, Royal Victoria Hospital, and to play a role in supporting their long-term vision for growth.”
Appelt and Centurion remain partners on several other medical and health related properties in their portfolios.
Centurion is a Toronto-based investor, developer and asset management firm with interests in a range of real estate sectors, including residential apartments and student housing. It holds approximately $7.8 billion of assets under management.
CRE transaction volume down in the GTA, but demand remains for retail properties, suburban apartments and industrial
Commercial real estate investment activity was down in the Greater Toronto Area (GTA) last year from 2023 and, after a brief spate of optimism in the fall and early winter, a series of issues continue to concern the market today.
āWe were a little bit more optimistic in November compared to now, especially with the Bank of Canada perhaps not being as aggressive with lowering interest rates,ā Altus Group vice-president of data solutions and client delivery Ray Wong told RENX.
āI think interest rates will still fall, but maybe not at that same pace. And even though inflation is in the target range, the challenge going forward is potential tariffs from the U.S. and whether or not this decrease in immigration will impact our growth.ā
Investment activity was up last year in Montreal, Vancouver and Ottawa, but things are lagging in the GTA and Ontarioās Greater Golden Horseshoe region.
Wong said much of that can be attributed to large bid-ask spreads between buyers and sellers, a lack of available product, and relatively high Bank of Canada bond rates.
āI think people will be watching over the next few months to give themselves a little bit more confidence to get re-engaged in the market,ā Wong said. āBut I think, in between now and then, there still will be some opportunistic investors and probably some owners that will have to sell based on certain market conditions.ā
Industrial led the way in transaction volume
Investors today are most interested in food-anchored retail strips, suburban rental apartments, industrial properties and regional malls, and thereās not enough of them available at attractive prices.
Industrial had the highest transaction volume total of any sector in the GTA at $5.55 billion during 2024, followed by:
residential land at $3.36 billion;
apartments at $2.34 billion;
retail at $2.08 billion;
industrial, commercial and investment land at $1.99 billion;
office at $1.64 billion;
apartments at $1.28 billion;
hotels at $125.3 million;
and residential lots at $20.9 million.
Wong said GTA office leasing activity was up from 2023, particularly for class-A space, partly due to return-to-office mandates from some technology firms and financial institutions. Demand also remains for space in AA and A office buildings.
āI think the market fundamentals are there but you’re probably not going to see a huge rebound in office rental rates just because there’s still a lot of availability,ā Wong observed, noting that most office building owners donāt have to sell because theyāre still covering their costs despite higher vacancies and lower rents.
Some office and retail properties are seen as conversion, intensification or redevelopment plays.
Canadian private investors were the most active
Canadian private investors accounted for the highest share of GTA acquisition volume with $8.44 billion. Developers were responsible for $2.93 billion, users for $2.02 billion, Canadian public investors for $1.09 billion, foreign public investors for $711.1 million, institutions for $466.7 million, governments for $385.6 million, foreign private investors for $68 million and builders for $41.2 million.
āFor certain assets, I think we’re still going to have foreign buyers step up, but I think they might be a little bit cautious,ā Wong predicted.Ā āForeign buyers are looking on a global basis and there’s probably some monies that are targeted for Canada, but they’re also looking for the right asset that makes a difference in the marketplace or helps their overall portfolio.ā
Owner-users became more active in industrial acquisitions because there was less competition from investors.
There may be challenges for some owners to hold on to vacant land this year unless interest rates come down faster, Wong believes.
The GTAās top 10 CRE transactions
These were the 10 largest (dollar value) CRE transactions of 2024 in the GTA, according to Altus Group.
1.Ā Brookfield PropertiesĀ acquired a Toronto apartment building at 77 Davisville Ave. and the nearby three-tower Village Green Apartments at 55 Maitland St., and 40 and 50 Alexander St., encompassing 1,188 units, fromĀ GreenrockĀ for $437.18 million on Sept. 5.
2.Ā Prologis, a San Francisco-based REIT specializing in logistics properties, acquired a 12-year-old, 1.34-million-square-foot industrial building on 79.25 acres at 8450 Boston Church Rd. in Milton fromĀ Sycamore PartnersĀ for $361 million on Aug. 28. It will continue to serve as aĀ RONAĀ distribution centre through a 15-year leaseback.
3. Prologis also acquired 1.62 million square feet of industrial space on 90.2 acres on Steeles Avenue East and Melanie Drive in Brampton fromĀ Canadian Tire CorporationĀ for $258.1 million on Dec. 13. Canadian Tire is leasing back the distribution centre temporarily but the long-term plan is for Prologis to redevelop.
4.Ā George Brown CollegeĀ andĀ Halmont Properties CorporationĀ acquired a 15-year-old, 484,477-square-foot multi-tenanted office building on 2.43 acres at 25 Dockside Dr. in Toronto fromĀ H&R REITĀ for $232.5 million on April 15. Existing leases, including the largest one to main tenantĀ Corus Entertainment, will be honoured. George Brown plans to gradually incorporate academic functions into the space.
7.Ā Liberty Development CorporationĀ acquired 8.26 acres of high-density residential land at 7700 Bathurst St. in Vaughan fromĀ The Torgan GroupĀ for $136 million on Feb. 1. The site is home to Promenade Village Shoppes. Thereās no development application for it yet but itās adjacent to Libertyās current development site forĀ Promenade Park Towers, which consists of two towers with a combined 761 residential units and retail at grade.
8. Starlight andĀ BGOĀ acquired a new 227-unit apartment building on 2.47 acres atĀ 1475 Whites Rd.Ā in Pickering from Pine Ridge Tower Ltd. for $127.1 million on Nov. 5.
9.Ā Solmar Development Corp.Ā acquired 98.21 acres of low-density residential land at 12561 Centreville Creek Rd. in Caledon from an individual for $125 million on June 27. There are no development applications in place but Solmar previously acquired an adjacent 98.8-acre site at 12494 The Gore Rd. for $16.5 million in 2018 and a 26.7-acre site for $9 million in 2020.
10.Ā Giampaolo Investments Ltd.Ā acquired 97.88 acres of medium-density residential land at 2055 Bovaird Dr. W. and 9980 Mississauga Rd. in Brampton for $122.5 million on Feb. 22. The site, occupied by a golf driving range and a gas station, was purchased from theĀ Ontario Superior Court of JusticeĀ in a distress sale. The developer proposes a mix of high-rise and medium-density housing.
Culture-driven placemaking is becoming a key strategy in real estate, influencing how spaces are designed to foster community engagement and authenticity. This approach is particularly shaping hotel strategies, with operators focusing on integrating hotels into vibrant neighborhoods rather than traditional downtown locations.
GUEST SUBMISSION:Ā Over the past decade, we saw how the rise of Instagram and social media influencers helped scale a greater interest in creative placemaking in real estate. But that rush to drop in a colourful and flashy art piece for that perfect photo moment is now fading behind us.
What we are now seeing is a major shift in our industry, with a greater desire for placemaking and public art that is focused on culture-driven strategies to help give place a greater sense of purpose and identity. We are seeing this not just with developers and asset owners, but also with city spaces and infrastructure projects.
This greater appreciation is also being reflected in conversations we have been hearing from hotel owners.
It used to be, you could put up a nice hotel anywhere downtown and business would follow. Now hoteliers are strategically looking to embed themselves in destination neighbourhoods, with active communities that have authentic identities.
Running down placemaking trends
With that in mind, here are some other emerging placemaking trends we expect to see more of in 2025.
A greater demand from developers and asset owners for bringing in placemaking experts earlier in the planning and design phase of a project.Ā While it is true that art can be dropped-in to make a space look beautiful and draw a crowd, there is now a growing understanding that the real power and economic impact of a placemaking strategy comes when it is integrated in the design and planning of a building, community or master plan from the start. Northcrest Developments, a Canadian developer leading the development of the former Downsview Airport in Toronto, understands this very well. We worked with them very early on, to incorporate anĀ Art, Culture & Creative Placemaking Master Plan and Public Art PlanĀ as part of their site plan application to the City of Toronto. We are also working with municipalities like theĀ City of Brampton, who are taking a similar approach to their urban planning, to help guide strategic decision-making processes and investments for future public art projects across the city.
A greater focus on local art that tells a story about the community.Ā Developers and asset owners are looking to work with more local artists who can bring deep and authentic knowledge and connections to an area.
Creative assets that make a space functional.Ā Moving away from installations that are merely pretty to look at, there is now a greater demand for public art strategies that bring more live engagement and function to a space. A great example of this is work we did withĀ Shape Properties to create a āPlay on the Plazaā art installation, a pop-up summer activation at a retail plaza just outside Vancouver. It consisted of a series of brightly coloured modules designed as functional seating and integrated with 10 different game zones such as cornhole, table tennis, checkers, chess, pucket and tic-tac-toe.
Repurposing of vacant and unexpected spaces to create new social spaces, also referred to as āthird spaces.āĀ In addition to bringing in more function, we are also seeing placemaking strategies that give underused public spaces a social purpose. A key driver of this trend is the need for cities to help reduce the social isolation that many are still feeling post pandemic. Inflation right now is another driver. Because people are spending less money on shopping, dining and entertainment, there is now a greater need for free engaging public spaces that bring people together to socialize.
Transit hubs becoming cultural destinations.Ā We are starting to see more and more airports thinking differently about their infrastructure and their role in cities as social and cultural destinations. We recently started working withĀ Dallas Fort Worth International AirportĀ on a public art and media strategy, that aims to transform the airport into a cultural destination. San Francisco International Airport is another great example, using art to transform the airport from a place to pass through into a meaningful experience.
A holiday art installation at Royalmount in Montreal. (Courtesy MASSIVart)
Greater focus on sustainability and using authentic materials.Ā With the rising need for asset owners to meet more rigorous sustainability mandates, we are starting to see art installations using natural elements and modular pieces that can be adapted and reused year after year. For a recentĀ holiday installationĀ at Royalmount in Montreal, reusability was an important consideration. When it comes to using organic materials, the work of New York-based architect, designer and artistĀ Neri OxmanĀ fuses nature with our built environment. Itās experimental and very cutting edge, but provides a great source of inspiration.
With so much pressure on cities, property owners and developers to build, reimagine and protect assets that will generate long-term value, placemaking strategies today must deliver on many fronts.
But the most important thing will still always be to build a physical and emotional connection between the community and the places they share.
UPDATED: Toronto-based Dream has provided its investors with a lot to unpack this week in the financial reports of its various entities and partnerships, from a strategic review at its residential REIT to a major Greater Toronto Area industrial acquisition and an update on the challenges facing its office REIT.
Many of its subsidiary entities reported their financials this week. Dream Unlimited, its parent company, is to report on Feb. 25.
One of the most significant announcements came Thursday, when Dream Residential REIT (DRR-U-T) announced it is undergoing a strategic review due to the ongoing disconnect between asset values and its unit trading prices.
āThere continues to be a disconnect between our trading price and the intrinsic value of Dream Residentialās portfolio,ā Brian Pauls, Dream Residential REITās CEO, said during its investor call on Thursday. āWith our year-end results we have announced that the REIT has commenced a strategic review process with a goal to maximize value for our unitholders.ā
Dreamās units have been trading mainly between US$6 and US$8 over the past year, vaulting from US$6.76 to US$7.85 yesterday on the announcement of the review. In 2022, the units had been trading well above US$11.
Its NAV per unit as of Dec. 31 was US$13.39.
Dream Residential REIT
The trust owns a portfolio of 15 apartment properties in three U.S. markets, the greater Dallas-Forth Worth, Cincinnati and Oklahoma City areas. They comprise 3,300 rental units and were valued at slightly over US$400M at year-end.
Net income for Q4 was US$4.2 million and for the year US$6.4 million, compared to a year-end loss of US$14.9 million in 2023. Most of the difference is attributable to fair value adjustments on the properties and trust financial instruments.
Funds from operations were largely flat, at approximately US$13.9 million.
Pauls told investors and analysts on the call that while the review takes place, management intends to operate on a status-quo basis: āWeāre looking at everything, weāre looking at the entire company. The goal is to narrow the gap between where we trade and what our intrinsic, or NAV value, is. We believe that gap is too wide.ā
No properties are currently listed for sale.
āWe are continuing to run the business. We continue to evaluate opportunities in light of our liquidity and basically run the business as normal. So as weāre normally watching markets, watching transactions, looking for opportunities . . .ā
He said if management opts to pursue sales of its properties, the market is āvery healthyā.
āThere is lots of capital that wants to be in this asset class, itās very defensive. Itās very safe, the markets are nuanced meaning there is certain capital that wants to be in Texas, or Oklahoma, or Ohio. So thereās different levels of transactions and cap rates but there certainly continues to be transactions and interest in our types of properties, and our properties specifically, and in portfolios,ā Pauls explained.
No timeline has been established for the review.
Dream industrial: Major GTA acquisition
Dream Industrial REITāsĀ (DIR-UN-T) report this week revealed a major industrial acquisition of seven properties, comprising 998,000 square feet, in the Greater Toronto Area. The properties were acquired for $258 million as part of the Dream Summit joint venture. Its partner in the JV is Singapore-based GIC.
Ā The Dream Summit JV has acquired an industrial portfolio spanning almost a million square feet in the Greater Toronto Area. (Courtesy Dream)
The portfolio is a mix of single and multi-tenant buildings along the Highway 401 corridor. It includes a total of 11 buildings, according to data shared with RENX by Altus Group. It was acquired from Pure Industrial:
1865 Clements Rd., ($60.1 million) and 1875 Clements Rd. ($6.4 million) in Pickering;
980 Thornton Rd., South ($26.1 million) and 1000 Thornton Rd., South in Oshawa ($28.4 million);
650 Finlay Ave., in Ajax ($28.2 million);
40 Mills Rd., in Ajax ($12 million); and
1655 Tricont Ave., in Whitby for $25.6 million.
āWith relatively low site coverage and over 21 acres of excess land, the portfolio offers upside opportunities through a combination of sales and IOS (industrial outdoor space) activation, as well as intensification or redevelopment potential,ā the announcement states.
Dream holds a 10 per cent interest in the Dream Summit JV.
The announcement came on the heels of two other major industrial acquisitions in recent weeks:
a 27.5-acre waterfront property in Metro Vancouver which includes 210,000 square feet of existing buildings plus a large IOS footprint, for $143 million (by the Dream Summit JV); and
a 32-acre infill site next to the existing Stellantis vehicle manufacturing facility in Brampton (Greater Toronto Area), for $80 million in partnership with a āsovereign wealth fundā. It is shovel-ready for up to 680,000 square feet of new industrial development, with the current plan showing a two-building layout.
Dream Industrial reported increases in net income ($259.6 million in 2024, compared to $104.9 million a year earlier) and funds from operations ($288.9 million, up from $274.6 million in 2023). FFO per unit was flat at 70 cents during 2024.
The trust holds interests in 335 properties comprising 71.8 million square feet of space and valued at approximately $7 billion as of Dec. 31. The portfolio is down slightly from 344 properties at the end of 2023. In-place and committed occupancy was 95.8 per cent.
Dream Office REIT
Dream OfficeĀ (D-UN-T) continues to feel the effects of challenges in the sector, according to its Q4 2024 financials released Thursday.
The trustās portfolio at year-end 2024 was 24 active properties (two less than Q4 2023), valued at approximately $2.2 billion. Committed occupancy declined from 84.4 per cent to 81.1 per cent year-over-year.
On the upside, however, Dream has executed just over a million square feet of leases thus far in 2025.
āWe continue to manage our business in a very uncertain environment with a focus on reducing risk, improving liquidity and increasing our occupancy,ā Michael Cooper, Dream Office REITās CEO, said in its financial announcement. āThe announced sale of 438 University is an attractive transaction for the trust that will immediately reduce debt and increase liquidity.
āOur proposed plan to convert 606-4th Ave. in Calgary from an office building to a new residential rental building will mitigate future office leasing risk in a very challenging market, diversify the trustās source of income and improve the average quality of our portfolio.ā
438 University Ave. in Toronto has been sold for $105.6 million, or approximately $327 per square foot, and is expected to close in the coming weeks. Proceeds will repay a $68.9-million mortgage, with the balance being allocated to credit facilities to reduce debt.
The trustās debt level (net total debt to net total assets) rose from 50 per cent at the end of 2023 to 53.9 per cent as of Q4 2024, and available liquidity dropped from $187.2 million to $138 million in the same period.
Dream Office reported a $19.1-million net loss in Q4, compared to a $42.4-million loss in Q4 2023.
EDITOR’S NOTE:Ā RENX updated this article after it was published to include additional information about the industrial portfolio acquisition, provided by Altus Group.
Upcoming tariffs on Canadian imports into the United States are anticipated to wreak havoc on some urban areas north of the border, while other cities can expect to feel less harm from the trade taxes set to take effect next month.
The Canadian city ranked most vulnerable to the tariffs is in Atlantic Canada. Saint John, New Brunswick, a city of approximately 80,000 residents located an 80-minute drive from the border to Maine, was deemed to have an exposure index of 131.1% in the study released by the Ottawa-basedĀ Canadian Chamber of Commerce.
Saint John was listed well above the second-ranked city, Calgary, which scored 81.6% in the report.
The study noted that over 80% of the 320 thousand barrels of crude oil refined at Saint John’s Irving Oil Refinery are exported to the U.S., while many other seafood and forest products from the New Brunswick area are also exported to the U.S.
On Feb. 1, United States President Donald Trump issued an order to impose tariffs on Canadian goods, but they were postponed for at least 30 days. Last week, Trump ordered tariffs against steel imports from countries including Canada.
Moreover, the tariffs could have a devastating effect on Canada’s industrial and office real estate markets, as 1.8 million Canadians, 8.8% of all working Canadians, work in industries considered heavily dependent on American imports of Canadian goods, according to recent Statistics Canada data.
Ontario Premier Doug Ford recently noted that 500,000 jobs could be lost due to U.S. tariffs in Canada’s largest province alone, casting a dark cloud over the Ontario real estate market, valued at over $3 trillion at the end of 2023.
If the tariffs go into effect in early March as expected, the major impact expected on the cities’ economies could ultimately shrink their real estate footprints if jobs are lost because of the trade taxes.
The report’s rankings caught some attention in Saint John, where a local chamber of commerce official acknowledged the local economic dependence on the U.S.
“New Brunswick exported $15.5 billion to the USA in 2023 and the vast majority would have come from companies headquartered here in Saint John, the biggest being Irving Oil,” said Fraser Wells, chair of the board for the Saint John Chamber of Commerce, in an interview. “When you think of the companies large and small here in Saint John, it wasnāt a huge surprise to us overall, but certainly the scale to which Saint John was number one was a little bit surprising.”
Saint John has an office vacancy rate of 23.6%, well above the Canadian national average of roughly 17%, while it has a 1.4% industrial vacancy rate, according to Halifax-based real estate firm Turner Drake & Partners as of June 2024. Earlier this month Americold announced plans to build a warehouse near the port of Saint John.
The Canadian Chamber of Commerce compiled the list with help from chambers of commerce in cities with populations of over 100,000. Officials in those cities were not surprised by the results, though the CCC’s Chief Economist, Stephen Tapp, confessed that he expected a different city to take the top spot before embarking on the work.
“I thought it would be Windsor, Ontario,” Tapp said in an interview with CoStar News. “Some of these cities might not be aware of how many eggs they have in the USA basket compared to other cities.”
He also said that some areas, such as Southern Ontario, might have a hard time adjusting their local economy to lessen their dependence on trade with the U.S.
Calgary also vulnerable
Meanwhile, other urban areas, such as cities in Alberta, might be able to adjust local trade if a new pipeline gets built, Tapp said.
“I am not sure that Windsor has a lot of options because they are so closely tied to the American market but there could be new ways to sell energy, do we need a west-east pipeline to service a European or Asian market? Those are the questions,” Tapp said.
Calgary was listed as second-most vulnerable to the tariffs for similar reasons, as Alberta’s biggest city depends on exports of crude oil and natural gas to the U.S., most notably to the state of Illinois.
Three cities in Southwestern Ontario, Kitchener-Cambridge-Waterloo, Brantford and Guelph placed three to six, as the area economies rely on exporting auto parts to the U.S.
Hamiltonās steel exports landed it in eighth place, while cities in Quebec seen as reliant on aluminum exports were also ranked as vulnerable to the imposition of tariffs, with the Saguenay-Lac-Saint-Jean region and the city of Trois-RiviĆØres seen as most vulnerable. The report ranked Drummondville, Quebec, at the 12th position due to its wood and furniture exports to the U.S.
The urban areas that rely least on U.S. trade were Sudbury, which ranked last at 41, as its nickel exports are not uniquely focused on Canadaās southern neighbour, while West Coast cities like Nanaimo and Kamloops, British Columbia also ranked among the least vulnerable to sanctions due to the trade they conduct with Asian partners.
Canadaās largest cities were not ranked particularly high as being vulnerable to trade tariffs according to the Chamber of Commerce. Montreal ranked 23rd of the 41 cities, while Quebec City came in at 26th. Toronto was ranked No. 27 while Ottawa was 29th and Vancouver 32nd.
The Canadian economy is bracing for considerable economic disruptions resulting from U.S. President Trumpās executive order to impose sweeping tariffs on Canadian exports. While not everyone is convinced that all of the tariffs will come to fruition, the threat to Canadaās economy is real and significant.
The value of exports to the United States amounted to $546.6 billion in 2024. That value represents a nearly 60% increase from 2020, the year Trump all but wrapped up his first term in office. Over the last decade, exports to the U.S. have accounted for 72.3% to 79.9% of Canada’s international exports. The exposure to a trade war with the United States cannot be understated.
Breaking down 2024ās U.S.-bound exports by province illustrates which of Canadaās jurisdictions could be hit the hardest in the event of a trade war. Ontario, Alberta and Quebec will likely be affected more than other areas of the country due to export volumes and values. However, removing energy products from consideration takes Albertaās contribution to the U.S. export portfolio from 30% to 8%, leaving Ontario and Quebec as the only provinces contributing more than 10% toward the products entering the U.S. market, at 52% and 23%, respectively. Tariffs on oil arenāt expected to exceed 10%, as opposed to the 25% levied across all other product types.
Looking at each province’s trade activity in 2024 as a percentage of the estimated provincial 2024 gross domestic product illustrates each province’s challenges.
Alberta exports to the U.S. account for 45% of its GDP. If energy exports are removed entirely from consideration, that 45% U.S. export-to-GDP ratio drops to 8%. New Brunswick, Saskatchewan, Newfoundland and Labrador all experience significant declines in percentage of GDP affected when energy products are removed from consideration.
The western provinces of Canada are likely to avoid the level of economic shock felt in the east. The anticipated lower tariffs on oil will be felt almost immediately by American consumers in the form of higher prices for gasoline.
Additionally, the now-completed Trans Mountain pipeline expansion (TMX) presents the possibility of ramping up oil exports to other international markets. Roughly 20% of the added capacity, the equivalent of approximately 180,000 barrels a day, is currently available and could provide alternatives for producers who would otherwise be facing tariffs. However, tariffs on crude oil could hamper oil production and will reverberate through Albertaās manufacturing industry.
Reduced business investment and rising unemployment will also take momentum from the multifamily market, which in Edmonton is coming off a landmark year of investment while Calgary faces the prospect of further reductions in its already-slipping average apartment rent rates.
Quebec and Ontario are both heavily weighted to trade with the United States: 75% and 77% of all their international trade is U.S.-bound, respectively. Half of Ontarioās trade with the U.S. is in the āMachinery and Equipmentā category, which includes car parts. One-third of Quebecās U.S.-bound products are in the same category. Another 23% of Quebecās trade falls under āMetallic Mineral Productsā and āFabricated Metal Products.ā
The manufacturing sectors in these two provinces will likely be affected at an inordinate level. Real estate markets will experience a sudden reduction in space demand, led by industrial, from large scale specialized buildings through to the small bay market that supports the manufacturing industry. Retail and multifamily markets will be far from unscathed, suffering from the knock-on effect of increased unemployment, reduced consumer spending, and a likely increase in the already high number of resident outflows to other provinces from Ontario.
While British Columbiaās contribution to Canadaās exports is just 7.6%, it is one of the more diversified provinces in terms of trading partners. Roughly 53% of BCās exports end up in the United States. However, 16% of BC’s exports go to China, 10% to Japan and 6.5% to South Korea. India, the European Union, countries belonging to the ASEAN region, and a collection of smaller countries worldwide account for another 15% of British Columbiaās current trade network.
The province will not be left without scars. Canada’s reciprocal tariffs on inbound products will increase construction costs after having levelled off. Vancouverās acute housing shortage will likely be aggravated as more projects are delayed or potentially scrapped altogether. Even small projects that can be fast-tracked through planning processes will suffer under the sudden reacceleration of costs. This will affect the multifamily market’s recovery and reduce the momentum in the small bay industrial market, which is a significant contributor to the health of Vancouverās industrial market.
While all provinces and territories ardently oppose the trade war, its effect on these jurisdictions will be felt at differing magnitudes. British Columbia and Alberta, the two provinces that could be considered the most insulated from tariffs, are also the two provinces with existing trade relationships and infrastructure already in place to help offset the overall national effect by pivoting trade practices more in the direction of other countries. More countries will likely face similar challenges and could also consider altering trade relations.
MorguardĀ has released itsĀ 2025 Canadian Economic Outlook and Market Fundamentals ReportĀ ā a comprehensive analysis highlights trends and opportunities shaping the real estate market as Canada gears up for a rebound amid improving economic conditions.
āRetail leasing tightens as national and international brands expand their physical footprints, driving increased competition for high-quality spaces in top-performing shopping centres,ā said the report.
āDemand for retail space in the countryās most productive shopping centres and community strip centres outpaced supply as national and international retailers continued to expand their brick-and-mortar presences. A range of new retail offerings, concepts, and formats have been introduced across the country. Looking ahead to 2025, investment market activity in the retail sector is expected to increase while the retail leasing market stabilizes, supported by a balanced demand-supply dynamic.ā
Keith Reading, Senior Director of Research for Morguard, said leasing market tightened in 2024 as demand outpaced supply. Vacancy fell to 6.2% nationally at midway 2024 from 7.0% a year earlier.
āConstruction activity continued to rest below the long-term average due to the high cost of financing and materials and labour shortages. Premium-quality available space became increasingly scarce, particularly in open-air centres.. Retailers continue to lease up space including on the main shopping streets of the countryās downtown areas,ā he said.
āHowever, vacancy remained elevated in older covered malls and in the downtown areas of cities where foot traffic rested below the pre-pandemic peak levels. Stronger leasing fundamentals and rent growth supported healthier performance, investment returns averaged 4.2% for the year ending June 30, 2024, following a three-year period of weaker performance.
āProperty values stabilized as occupancy levels increased along with rents. Retail property sales increased by 30% in the first half of 2024 from the same period a year ago, reflecting increased investor confidence levels. Private investment groups acquired retail property at an increased rate while institutional groups remained on the sidelines due to the high cost of capital. Retail owners and managers continue to look for opportunities to drive foot traffic and sales with new restaurant and entertainment offerings.ā
Reading said investors have exhibited increased interest in acquiring retail property recently resulting in several significant sales ā recent examples include the announced sales of: Galeries Laval a 591,00O regional shopping centre in Montreal,Ā Kitchener Ontarioās 732,000 square foot Fairview Park Mall also a regional centre, and the 784,000 square foot Champlain Place Centre in Dieppe New Brunswick, which is the provinceās largest mall.
āInvestors continue to look for shopping centres with strong national tenants that generate strong sales results and that are market leaders,ā he noted. āPrivate capital groups have been able to acquire high-quality assets in an environment where competition levels have been relatively low, as institutional buyers have adjusted their portfolio weightings and/or allocated funds to other property types such as industrial and multi-res apartments to offset weakness in the office sector.
āInvestment performance has improved, and pricing has stabilized, which has also supported positive investor sentiment. Developers have been reluctant to build new speculative product per se. Development activity has been relatively brisk with owners of retail property looking to add density and/or alternative uses to existing shopping centres including residential. At the same time, investors and developers have acquired retail properties with a view to expansion through retail pads or other improvements.Ā The development of retail space at the foot of newly constructed condominium and rental towers has also been a retail development market driver over the recent past.ā
Are grocery-anchored properties still the jewel of this sector?
āThe short answer is yes, demand for this kind of product continues to outdistance supply,ā explained Reading. āBuyers continue to recognize the benefits of grocery store anchors as a stable, large tenant that will generate foot traffic and benefit the rest of the tenants in the property.
āIt will continue, as the grocery sector continues to expand its footprint with several expansions already announced for 2025 ā Loblaw has announced its intention to open 50 new stores in 2025, Metro Inc is planning to open a dozen new discount stores in fiscal 2025.
āGrocery anchored centres have outperformed over the past few years, a trend that will continue into 2025. Investors crave stable returns, which grocery anchored centres have provided in the past and have outperformed during periods of economic uncertainty. Quite simple, food is a necessity, and our growing population will require food and other necessities which bodes well for the grocery sector.ā
What is the forecast for the retail sector in 2025?
Reading said the outlook for the retail sector is generally positive, despite increased headwinds.
āRetail spending is expected to increase at a modest pace, driven by population growth, positive wage growth trends, lower mortgage rates, modest economic expansion and job growth, and a pick up in housing market activity,ā he said.
āAs a result, retailer revenues will continue to rise in 2025, albeit at a slower pace than in 2024. Investors will continue to target retail assets that will provide attractive risk-adjusted returns and income growth. Discount, grocery, and other retailers selling necessities will continue to expand.
āGrowth will also include niche retailers such as thrift stores and other recycled merchandise operators, services retail, and experiential retailers. International and national retailers will continue to expand in 2025 as well with several expansion announcements already being announced. The generally positive outlook is accompanied with a measure of risk including the negative impacts on the retail sector and spending patterns ā these include higher inflation levels as a result of tariff wars, a slower than expected interest rate cutting cycle, weaker than anticipated economic and job market growth, and the negative impacts of geo-political events on business and consumer confidence.ā
What is the impact of the low Canadian dollar on the retail sector?
Reading said prices for imported goods and services generally increase (particularly from the US), which reduced the spending power of Canadians. Canada imports close to half of its goods from the US. Prices for domestic goods increase. For example, gasoline is priced in US currency, therefore, gasoline prices will increase.
Food prices will also increase. Canadian consumer spending and balance sheets will suffer. However, wage growth and lower interest rates will offset the impact of a weak Loonie to some extent.
āThe retail sector and Canadian consumer have exhibited a significant level of resilience over the recent past, despite several headwinds. I anticipate this will continue over the near term, especially given the comfort-level Canadian consumers have exhibited with record high levels of consumer debt,ā added Reading.
