Department store expected to shutter dozens of big box stores; for some shopping centre owners, this might be a blessing in disguise
Hudson’s Bay Company (HBC) is expected to close at least 40 large-format stores across Canada after filing for creditor protection under the Companies’ Creditors Arrangement Act, a move which would put millions of square feet of retail space back onto the leasing market.
HBC has 80 stores in seven provinces and sells online through TheBay.com. The company also operates three Saks Fifth Avenue and 13 Saks Off 5th stores in Canada that are under a licensing agreement and separate from the bankruptcy protection proceedings.
HBC store closures could mean up to five million square feet, or more, of retail space could become available and need to be absorbed in one way or another.
But with many of those HBC stores occupying prime locations, the news may not be as dire for landlords as it might seem at first glance. In fact, it could create opportunities for some owners.
“A lot of those sites are very well-located and not at their highest-and-best use,” Sherman Scott, vice-president of Colliers’ Vancouver brokerage, told RENX.
“There’s value in those leases that were signed so many years ago.”
Many HBC stores could be redeveloped
Markets have shifted over the years, particularly in urban areas, and many HBC stores are prime candidates for redevelopment.
“These spaces are huge and I think it would be a rare scenario where somebody comes along and recasts the space as is,” Scott said.
“There’s not a lot of large retailers in that size range, maybe a handful, but with the current configurations and ceiling heights, it’s probably going to be cheaper to demo those spaces and redevelop them.”
Scott speculated that a lot of HBC space not eaten up through demolition and new construction could also be divided into smaller units to accommodate multiple smaller users.
“Many landlords have been trying to get those boxes back for years,” Scott explained. “Many of them would like to reconfigure that space and, in some cases, build mixed-use.”
Lessons from past department store failures
Retail property owners and managers can also draw upon lessons learned from past mass Canadian closures of Target, Zellers and Sears stores.
“I think a lot of the landlords will cope just fine if they can get control of those spaces again,” Scott said, emphasizing that long-term leases with below-market rents were often a hindrance to owners of buildings in strong urban locations.
Scott acknowledged, however, that owners of properties with HBC stores in secondary markets could take a hit, as there could be much less demand for retail space or mixed-use development in those areas.
Scott is unsure of how long it would take to liquidate merchandise from HBC stores slated to close.
The creditor protection filing is no surprise to major retail property owners. The company’s financial struggles have been well documented in recent years.
Primaris REIT issued a media release on March 10 stating it has exposure to 10 HBC locations totalling 1.12 million square feet of gross leasable area that account for approximately $11.6 million in total gross rental revenues.
Primaris president and chief operating officer Patrick Sullivan said the REIT has been preparing for this eventuality for years and “although there could be an impact to our financial and operating metrics in the short term, Primaris has detailed plans for all 10 locations, and is ready to take action if and when any locations are disclaimed.”
Canadian retail leasing remains strong
Canadian retail leasing has been extremely active over the past couple of years. Scott said the vacancy rate for suburban grocery stores is just 0.7 per cent and the urban high street retail vacancy rate is about four per cent.
“With inflation, higher interest rates and now tariffs, it’s just been one thing after another, but retail still seems to be quite strong,” Scott said.
Construction of large, stand-alone, single-storey shopping centres and even smaller strip malls has essentially stopped in Canada and much of the retail that’s planned is tied to mixed-use condominium developments. With the condo market in the doldrums, many of those projects have been put on hold.
That means demand for the limited retail space that’s available should remain high and support rent growth.
HBC’s property mortgages and distribution centres
HBC has $724.44 million in mortgages tied to some of its real estate holdings as part of the $1.13 billion of secured debt it was carrying as of Jan. 1. On that date, it had cash on hand of about $3 million.
“I imagine the lenders aren’t going to want to be in the real estate business, so they’ll be cooperative to the extent that they extract as much value as they can,” Scott said. “That could mean selling to somebody else.”
HBC also leases four primary distribution centres: Vancouver Logistics Centre in Richmond, B.C.; and Scarborough Logistics Centre, Eastern Big Ticket Centre and Toronto Logistics Centre in the Greater Toronto Area. It also leases distribution space in Winnipeg and Calgary.
It’s not yet clear what impact a major downsizing of the retail segment could have on this space.
While the industrial real estate market remains strong, vacancy rates have crept up and the explosive rent growth from earlier in this decade has moderated. There should still be enough user demand, however, to eventually fill those spaces if they’re vacated by HBC.
Six total outlets in Toronto and Montreal to remain as chain bankruptcy sell-off continues
Three stores in each of Canada’s two biggest cities are the only outlets of the 96 operated by the Hudson’s Bay chain to avoid closing after a court granted the retailer’s request to hold liquidation sales as part of its financial restructuring.
The standalone store at 176 Yonge St. in downtown Toronto, and at 585 Sainte Catherine St. in downtown Montreal will remain in operation following the judgment from the Ontario Superior Court of Justice.
The other outlets that avoided liquidation due to the court ruling are in the Yorkdale Shopping Center and Hillcrest Mall, in the Toronto area, and the Carrefour Laval and CF Fairview Pointe Claire locations, both in suburban Montreal.
Aside from the three stores in Toronto and three in Montreal, the retailer said the inventory in 74 Hudson’s Bay stores will be sold off and liquidated, along with the that of Hudson Bay’s three Saks Fifth Avenue locations and 13 Saks Off 5th shops in Canada.
Hudson’s Bay said the decision to keep the six locations operating for the moment was prompted by strong sales after the chain filed for protection from its debtors and announced plans to restructure its finances.
Customers respond by shopping
“Canadians have shown extraordinary support for Hudson’s Bay over the last two weeks and overwhelmed us with their encouragement and endearment for the brand,” Hudson’s Bay President and CEO Liz Rodbell said in a statement.
The Hudson Bay’s nine floors and almost 550,000 square feet of retail space in downtown Toronto will remain in operation for the moment. (CoStar)
Cadillac Fairview owns the Yonge Street location, Oxford Properties owns the Yorkdale outlet, and Hillcrest Mall belongs to Oxford Properties and Montez Corp. In Montreal Hudson’s Bay owns its downtown property as part of a joint venture with RioCan REIT, and Cadillac Fairview owns the Pointe Claire outlet as well as Carrefour Laval.
The ruling increases the likelihood of the other 29 Hudson’s Bay outlets in Ontario closing permanently as well as 10 others in Quebec and all 16 in British Columbia. The other outlets expected to close are the 13 in Alberta and two each in Nova Scotia, Saskatchewan and Manitoba, as well as all 16 of the Saks-branded outlets across Canada.
While the magnitude of the closures could result in the loss of recurring revenue from rent for some landlords, some owners have expressed optimism that they will be able to fill the empty retail outlets.
Some Bay Street analysts said the market’s might have overreacted to the HBC bankruptcy proceedings.
“While a sell-off was warranted, the degree of relative under-performance is starting to feel overdone,” said Michael Markidis, an analyst with BMO Capital Markets, in a note.
Markidis pointed out that RioCan, the real estate investment trust with the most significant exposure to Hudson’s Bay Co., saw its units drop 10.5% after the bankruptcy filing, while the overall REIT index was down just 1.5% during a similar period of five trading days.
The analyst lowered his 12-month target price on RioCan to $20 from $21.50 but said the REIT offers a one-year return potential of 23%.
Markidis said RioCan’s leases at Georgian Mall and Oakville Place have net rents of about $3 per square foot and $11 per square foot respectively, both rates being well below market prices.
“The average rental rate for the remaining locations is significantly higher,” said Markidis.
However, analysts at TD Securities said the improved performance by some Hudson’s Bay outlets since the bankruptcy announcements likely is not sustainable.
“All this raises the prospect of some scaled-down version of HBC potentially emerging from” its filing under the Companies’ Creditors Arrangement Act, said the TD analysts.
The 90 outlet closures would represent the biggest mass retail exodus since the 133 outlets of the Target chain closed in Canada, prompting some institutional investors, such as Ivanhoé Cambridge to attempt to seek to sell their retail properties.
Company pledges to expand its retail store network; Canada Cartage to acquire fleet services
Walmart Canada has announced a $6.5-billion investment in Canada over the next five years, which it says includes “dozens of new stores across the country”, and the openings for several previously announced new facilities.
Walmart also announced it is selling its fleet services business to Canada Cartage, one of the country’s largest trucking and logistics firms.
The announcement Thursday morning mentions five new Supercentre openings in Alberta and Ontario by 2027.
This is to include major new stores in the Alberta cities of Calgary, Edmonton and Fort McMurray, though these plans were previously disclosed late in 2024.
Walmart also notes two Supercentres already approaching completion in the Toronto area are to open by the end of this year. The Port Credit Walmart Supercentre in Mississauga is to open this summer, while the Oakville Walmart in the town just west of Toronto is to open in “late 2025.”
Walmart’s “ambitious growth” plan
Finally, Walmart says its new Vaughan distribution centre, which will be its most advanced facility in the country, is scheduled to open this spring. Vaughan is a fast-growing city located in northern section of the Greater Toronto Area.
The release does not contain any further specific information about how the new spending would be allocated, nor where any new stores might be located.
“Walmart Canada is on an ambitious growth journey to serve even more Canadians – better and differently than ever before. This $6.5 billion investment is the largest we’ve made in Canada towards expanding our footprint since we first arrived here 30 years ago,” Gui Loureiro, regional CEO, Walmart Canada, Chile, Mexico and Central America, said in the announcement.
He is taking over the role of current Walmart Canada president and CEO Gonzalo Gebara.
Canada Cartage buys fleet services
Walmart’s fleet services division is based in Mississauga, and provides services for the company’s over 400 stores and other facilities across Canada. It was in the news in November in B.C., where 95 drivers based in the Metro Vancouver city of Surrey were granted interim certification by the Canada Industrial Relations Board to unionize under Unifor.
The 110-year-old Canada Cartage is also based in Mississauga, and operates a fleet of over 4,000 tractors and trailers. It employs over 3,500 people and operates logistics facilities in every major Canadian urban area, according to the company’s website.
“Canada Cartage has deep expertise in providing dedicated fleet services and has been serving Canadian businesses for more than 110 years,” Matt Kelly, Walmart Canada’s vice-president of supply chain, said in the announcement.
“Through Canada Cartage we can serve customers even better and more flexibly and provide fleet employees with exciting growth opportunities at one of Canada’s largest and most trusted supply chain service providers.”
Financial details of the transaction are not disclosed.
Walmart’s previous five-year plan
Walmart’s announcement comes as the international retail giant closes off a $3.5-billion investment in Canada, announced in 2020. This series of expansions and renovations included:
modernizing more than 180 stores – including transforming the Mississauga-Square One Supercentre into its flagship location;
four new store locations: in Victoria, B.C (Hillside) and Montreal, Que., (Marché Central), and relocated stores in Edmonton, Alta., (Kingsway) and Vaughan; and
more than $800 million invested to open the Cornwall Distribution Centre, Surrey Distribution Centre, Rocky View County Fulfilment Centre (Calgary), Moncton Distribution Centre and the Vaughan Distribution Centre (still to open).
“Across the country we’re making strategic investments in our online and in-store offerings to be more relevant to more customers than ever before. From newcomers and urbanites to higher-income Canadians, more customers are choosing Walmart for their shopping needs,” Joe Schrauder, chief operations officer, Walmart Canada, said in the announcement.
About Walmart Canada
Walmart Canada is an omnichannel retailer of more than 400 stores nationwide serving 1.5 million customers each day. Its online store Walmart.ca is visited by more than 1.5 million customers daily. With more than 100,000 associates, Walmart Canada is one of Canada’s largest employers and is ranked one of the country’s top-10 most influential brands.
Startup funding harder to come by, mergers and acquisitions to accelerate: Proptech in Canada report
There’s been a relatively steady decline in the number of Canadian proptech startups since a peak of 57 in 2020, but Canada remains a global hub for real estate innovation according to Proptech Collective’s just-released Proptech in Canada report.
Toronto-based Proptech Collective is a non-profit founded in 2019 with a vision to drive innovation across the Canadian real estate and construction industries through events, educational content and community initiatives.
“Proptech experienced challenges because it was selling to the real estate industry, which has had its own struggles over the last few years regarding interest rates and other factors,” Alate Partners vice-president and report lead Stephanie Wood told RENX.
“But ultimately, I think we’re emerging stronger because the quality of companies that we’re seeing is just so much more impressive.”
Proptech startups are becoming increasingly focused on building sustainable businesses, shifting from a “growth at all costs” mentality earlier in the decade, according to Wood.
“There have been a lot of lessons learned in the proptech space over the last decade so I think people are looking at those lessons and thinking about what business models actually make sense. I think the industry is entering another phase of maturity compared to the last 10 years or so.
“It’s gone through a bit of a reset and now it’s graduating into its next phase, which is going to be marked by founders that are building stronger businesses that have good unit economics and that are more sustainable and that have scale.”
Growing role for artificial intelligence
Artificial intelligence (AI) holds great potential for transforming construction as well as residential and commercial real estate, but many solutions remain exploratory as industry leaders focus on establishing data governance standards and enhancing data structures and systems architecture.
“AI is unlocking possibilities and things that weren’t really possible before,” Wood explained. “AI inherently can process way more information and way more data.”
AI can help optimize the way buildings are designed while streamlining construction scheduling and creating more efficient and sustainable construction practices. It’s also hoped that it can speed up the zoning and permitting processes to eliminate bottlenecks in receiving development approvals.
AI should also be able to play a role in improving energy efficiency data summarization and decision-making for commercial real estate owners and their portfolios.
Other proptech trends
More scalable approaches are revolutionizing construction, addressing labour shortages and expediting building processes. By assembling components off-site in controlled environments, construction timelines are reduced, costs are more predictable and quality control is more efficient.
“Modular construction is really growing and there’s more appetite for it and more curiosity than I’ve previously seen on the developer side, especially as the construction labour force is shrinking in Canada,” Wood said.
While many institutional real estate firms have been investing in data centre strategies for years, this growth is only predicted to accelerate due to AI and increasing data consumption. These assets require substantial energy, which has highlighted the need for stronger grid infrastructure and more sustainable energy.
Proptech should be able to strengthen these systems, which will be critical in meeting future energy demands, optimizing building performance and advancing climate goals.
There’s been a growing focus on platforms that consolidate services like financing, insurance and transaction management in order to reduce friction and simplify the buying and selling experience.
There are two proptech sectors that have failed to gain the traction which was expected a few years ago:
blockchain, where a decentralized database records transactions in blocks that are linked together;
and the metaverse, where users are represented by avatars in virtual worlds and interact to purchase goods and services.
Challenges with fundraising
Canadian proptech startups faced a tough funding year in 2024, raising about $300 million across smaller rounds, though vacation rental software company Hostaway raised approximately $525 million to push the total over $800 million.
Wood said fundraising was down across the entire technology ecosystem and not just within proptech.
“It’s a really interesting and exciting time for the industry, even though it’s gone through this period that has been more challenging on the fundraising side,” Wood said.
“People were investing a ton of money in these businesses that ended up looking more like real estate businesses and had a different return profile and different margins than a tech company. Now people are being a little bit smarter by aligning the sources of capital with the uses of capital.”
Real estate companies have become more discerning since the early days of proptech, when they were interested in trying out a wide variety of different technologies. They now need to see returns on their investments.
Mergers and acquisitions are picking up
Consolidation and partnerships have accelerated as the industry has matured and 2025 is shaping up to be a landmark year for mergers and acquisitions.
While the proptech space has been flooded with tools that have driven innovation and solved specific problems, they’ve also added complexity and forced customers to rely on multiple platforms. The industry now demands simplicity and efficiency, which is driving the push for consolidation.
More than 15 global proptech merger and acquisition deals have already been announced this year.
“It’s been very active in the first few weeks of the year and I think that this year will continue to have a lot of M and A activity,” Wood predicted.
She noted some companies may also be “looking to find a soft landing after a few tough years.”
Development land is no longer needed by automaker; Dream plans new construction at the property
Dream Industrial REIT (DIR-UN-T) has acquired a prime 32-acre parcel of development land in one of the most coveted locations in the Greater Toronto Area – a site that currently serves as a parking lot for the 2.95-million-square-foot Stellantis auto manufacturing facility in suburban Brampton.
The parcel of land on the sprawling Stellantis property at 2000 Williams Parkway, at the corner of Torbram and North Park roads just north of Toronto itself, was placed on the market in 2024. It underwent a competitive bidding process before Dream emerged as the buyer.
Dream acquired the site for $80 million as part of its Dream Summit JV, the trust revealed in its Q4 2024 financial report. Dream Industrial is partnered with Singapore’s sovereign investment fund GIC in that venture.
“This sale exemplifies the growing demand for well-positioned industrial land and the importance of aligning real estate decisions with long-term business strategies,” Jeff Flemington, a principal with Avison Young, which brokered the transaction for Stellantis, said.
Although additional details were not immediately available, Dream Industrial intends to use the property for future industrial development, a source told RENX. Dream confirmed in its financial report the property is shovel-ready for up to 680,000 square feet of new buildings.
Both Avison Young and Dream Industrial declined to provide further comment for this article.
Significant infill development potential
An announcement Tuesday from Avison Young called the transaction a “complex divestment project” which involved a number of stakeholders including Stellantis and Dream, the City of Brampton and numerous other parties.
“Avison Young was proud to facilitate this outcome for Stellantis, bringing together key experts to ensure a seamless process,” Sanjiv Chadha, also a principal at Avison Young, said in the announcement.
The property offers an opportunity for a significant infill development in an area already zoned for industrial and commercial types of uses, with a skilled workforce, and a sizable existing industrial and manufacturing base.
It is also near Hwy. 427 and the Airport Road north-south corridor, which offers access to a major nearby intermodal rail terminal.
The land became available due to a retooling of the Brampton Stellantis plant as the firm transitions some operations to produce electric vehicles and other new models. Stellantis announced a $3.6-billion plan to retool the Brampton and Windsor facilities in 2022.
The retooling at Brampton began last year and continues into this year. When the facility reopens Stellantis will manufacture the Jeep Compass there, according to the company website.
The GTA West industrial market
Brampton is part of the GTA West subsector, and contains 105 million square feet of the GTA West’s 422 million square feet of industrial inventory. The availability rate in the GTA West has risen recently to 5.7 per cent – a nine-year high according to Avison Young’s Q3 2024 data – as the industrial market has normalized following several years of intense demand and growth.
Asking net rental rates dropped slightly to $18.12 in the quarter. That’s down 3.4 per cent year-over-year, but rents had risen 104 per cent in the previous three years.
About 5.1 million square feet of new space, comprising 18 buildings, was under construction in the GTA West.
About Dream Industrial
Dream Industrial REIT owns interests in, manages and operates a portfolio of 338 industrial assets (545 buildings) totalling approximately 71.9 million square feet of gross leasable area in key markets across Canada, Europe, and the U.S. as at Sept. 30, 2024.
The trust is a part of the Toronto-based Dream group of companies, which has a portfolio of assets under management valued at approximately $26 billion.
EDITOR’S NOTE:This article was updated after being published to include the transaction price, the involvement of the Dream Summit JV, and the plans for 680,000 square feet of future development.
Latest in a series of Greater Toronto Area office transactions in recent months
Dream Office REIT (D-UN-T) has confirmed it has an agreement to sell its 438 University Ave., office tower in the heart of downtown Toronto for $105.6 million as office transaction activity in the city seems to be on the upswing.
The transaction is at least the sixth significant office property to trade in the past few months, after an extended period of relative inactivity in the sector due to uncertainty about the economy and future work trends.
The 20-storey class-A 438 University tower is directly connected to the St. Patrick station on the Toronto subway system. It contains 322,835 square feet of space and was 93 per cent occupied when brokers TD Cornerstone Commercial Realty and CBRE listed the building for sale early in 2024.
To facilitate the transaction, Dream said in its announcement late Friday the trust secured agreements to relocate approximately 17,000 square feet of tenants from the building to vacant space in Dream’s other downtown Toronto properties.
Dream did not identify the buyer, but in a published report, Greenstreet called it a government agency. The largest tenant at 438 University Ave. is Infrastructure Ontario, which is leasing 59 per cent of the space.
The transaction does remain subject to customary closing conditions, and is scheduled to close by the end of Q1.
Dream shifts some tenants to other buildings
Dream Office REIT will continue to manage the property, having secured an agreement to continue with these services for the next three years.
Moving several existing tenants to other Dream properties is expected to increase operating income in those buildings by over $1 million annually, the REIT states. It will also decrease vacant space in the buildings.
Finally, Dream also received a relocation right to move one of the last tenants at 250 Dundas St. W., so the building is fully unencumbered. This will reduce costs significantly in Dream’s development pro forma, it states, improving the potential value of the purpose-built rental development site.
“We believe the transaction is attractive to the trust as we estimate that these combined incremental benefits represent a value of over $20 million or $62 per square foot to the trust,” Dream’s announcement states.
Dream intends to use the proceeds to repay a $68.8 million property mortgage on 438 University, and to pay down its corporate credit facility.
Toronto-based Dream Office REIT is a significant office landlord in downtown Toronto with over 3.5 million square feet owned and managed.
Recent office sales in the GTA
The 438 University sale is the latest in a series of transactions involving larger Toronto office buildings. There were five such trades during Q4 of 2024, including the $161.3-million sale of 2 Queen St., in Toronto by co-owners AIMCo and CPP Investments to Brookfield Properties.
Each of the other transactions has been to a private buyer, or a company that will hold the property as an owner/occupier.
That 477,000-square-foot tower was the most significant trade, but far from the only one. According to JLL data in its Q4 2024 GTA office report, other properties which were sold during the quarter included:
522 University Ave., a 210,000-square-foot tower sold by Industrial Alliance to the University Health Network for $79.3 million. It is to become part of the downtown hospital’s network of outpatient, research and office facilities;
7030 Woodbine Ave., Markham, a 359,943-square-foot property sold by Wafra to Smart Investment Ltd., for $52 million;
2000 Argentia Rd., Mississauga, a 222,285-square-foot office campus sold by Quadreal to Aaxel Insurance for $40.1 million; and
55 Town Centre Ct., a 222,285-square-foot asset sold by the Ontario Superior Court of Justice to a private buyer for $17.3 million.
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 JLL’s Q4 2024 Toronto Office Insight report. It cites “aggressive concession packages” 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.
“Despite 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,” 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 “feast or famine” 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.
“Landlord concessions are helping to facilitate activity,” the report states. “One 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.”
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.
“Given Toronto’s 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,” it states.
“Yet 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.”
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 its 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 Google’s 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.
“Vacancy, availability and rents are expected to remain stable,” into 2025, the report states. “We expect an abundance of short-term renewals heading into 2025, as relocation and construction costs remain high.”
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.
“We think there’s 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.
“When we look at the landscape of 2025, we like the market broadly but in particular, we have a very favourable view of REITs.”
That seniors population is projected to grow at a 4.8 per cent compound annual growth rate (CAGR) through 2042, according to Hazelview’s 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.
“Senior 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,” Sahn explained.
Change in bank policy reverses fortunes
One of the biggest factors in this market recovery happened when world central banks “pivoted from tightening to easing” during the second half of 2024, he said. And it affected the wider REIT segment.
“We think that shift in monetary policy created an inflection point for the sector and since then, we’ve seen better performance out of REITs. We’ve 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.”
Overall, the growth rate projected for REITs is impressive, the report states.
“As 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,” 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.
“What 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. They’re 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.
“Hyperscale customers are demanding bigger and bigger facilities. It’s putting stress on power and utilities, and that’s leading to higher rent. As we look at the landscape, we’re going to see more data centre development and we think that’s great for the companies that we can invest in that already own an existing portfolio,” Sahn said.
While this growth looks to continue being strong, there are a few concerns for investors to be aware of.
“I 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 we’re 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 that’s something that municipalities, government and the industry are going to need to work on together.”
“Now’s the time” for real estate investment
So what is the general advice to REIT investors for 2025?
“Our view is for investors who don’t have exposure to publicly listed real estate today, now’s 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 it’s a long way from the boom of the past decade, Colliers’ Nicholas Kendrew doesn’t 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 there’s been a “fairly liquid market,” according to Kendrew, a senior vice-president with the brokerage and real estate services firm.
“I think the challenge right now is the bigger, more scale-driven product that’s a little less liquid in today’s market,” Kendrew told RENX. “But 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.”
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 aren’t in a rush to sell.
“I 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.”
TD Cornerstone Commercial Realty and CBRE are marketing the Cadillac Fairview-owned Yonge Corporate Centre office campus on a 7.79-acre site at 4100-4150 Yonge St. It’s comprised of three mid-rise office buildings totalling 649,808 square feet and a low-rise 7,992-square-foot heritage building housing the Auberge de Pommier restaurant.
“That will be a good benchmark for the rest of the market,” Kendrew observed. “I’m guessing that because this is the second time Cadillac Fairview has had it out with CB and TD, they’re deeply committed to a sale transaction.
“It 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.”
While Kendrew said Yonge Corporate Centre is a “stellar location,” 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 by True North Commercial REIT at 3650 Victoria Park Ave. in North York. Known as The Spark, the LEED Gold and BOMA BEST Gold-certified building is only about one-third occupied and is listed for $32 million.
“It’s a dual stream process where a leasing team has the lease listing, and they’re trying to find tenants,” Kendrew explained. “However, if a qualified owner-occupier stepped forward and wanted to buy the building, we’d sell on that basis.”
Off-market transactions
There are rumours about potential off-market transactions and Kendrew said if they happen, they’ll likely involve bigger Canadian pension funds selling non-core assets.
“There are a lot of groups that have said, ‘If you have someone who would be willing to pay us this sort of pricing, we will certainly consider that.’
“I 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.”
Differences in suburban assets
Colliers brokered the sale of recently built properties at 1900 and 1908 Ironoak Way 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.
“The 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,” Kendrew said.
“So 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.”
While the Ironoak Way properties sold for about $350 per square foot, Colliers also brokered last year’s receivership sale of an eight-storey, 222,285-square-foot office building with a high vacancy rate at 55 Town Centre Court 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 wasn’t available because of the high vacancy rate and the capital needed to improve the building.
“Lenders, if there is high vacancy or the lease terms aren’t that long, don’t want to go anywhere near it,” Kendrew said. “So you’re having to look at alternative forms of financing or even buying with cash.”
5600 Cancross Court
Kendrew said there’s 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 at 5600 Cancross Ct. in Mississauga that’s scheduled to close at the end of the month for approximately $32 million. The property was on the market for about a year.
“In a year that building will be entirely vacant with no cash flow,” Kendrew said. “But the buyer has an operating business and wants to move inside the whole building.”
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 wouldn’t own it at the end of the lease.
“Usually these owner-occupiers are private entrepreneurs who’ve made a lot of their own money,” Kendrew said. “They’ve got great banking relationships and they’ve leased at least 10,000 square feet from a landlord, and they’re saying, ‘I should buy my building.’
“If 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.”
A similar thought process was likely behind recent downtown Toronto office building deals at 438 University Ave., 522 University Ave., 2 Queen St. E. and 25 Dockside Dr. — which all involved owner-occupier acquisition elements.
Foreign owners are interested
Kendrew said there’s “a good cohort” of American and European investors interested in acquiring downtown Toronto office buildings.
“Whether it’s for residential conversion or industrial conversion, a lot of these office assets are going to be taken out of the inventory,” Kendrew said. “So 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.”
The low Canadian dollar is also enticing for foreign buyers, but the types of properties they’re seeking — high-quality with long-term leases, a compelling environmental, social and governance story, and located close to Union Station — haven’t 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.
“When we purchased the medical buildings in 2020, there was a lot of work to be done and there was significant vacancy,” Appelt president Greg Appelt told RENX in an email exchange.
“We 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.”
The sale to Roya Victoria Hospital
Appelt called the hospital next door the “natural” 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.
“We also liked that we were able to sell to the adjacent hospital,” Appelt wrote. “The RVH hospital serves more than 500,000 people in Barrie and the surrounding area and has half a million patient visits per year.
“They 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.”
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 Ontario’s 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,” Appelt said in the release announcing the sale. “As 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 Canada’s 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 – exceptional location, robust tenant mix and alignment with community healthcare needs,” Appelt said in the announcement. “We 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.
