Welcome to the latest edition of Toronto Industrial Intel. This week we are zooming out from week-to-week leasing activity to tackle the question I am hearing most often in client conversations right now: what does artificial intelligence actually mean for commercial real estate, and for industrial property in particular?
Cushman & Wakefield’s economics team — led by Chief Economist Kevin Thorpe — has just released a thoughtful white paper, “AI Impact on Commercial Real Estate: The Next 10 Years.” Rather than making a single bold prediction, the report does something more useful: it lays out four internally consistent scenarios and walks through how each one would reshape demand across office, industrial, retail and multifamily. Below I will summarize the framework, then focus on what it means for those of us active in the GTA industrial market.
The Big Picture: AI Widens the Range of Outcomes
The central message of the report is refreshingly honest: AI is far more likely to widen the distribution of economic and real estate outcomes than to deliver a uniform boom or bust. Like electrification, the computer and the internet before it, AI is a general-purpose technology — and history tells us those transitions are rarely smooth or easy to time.
The key insight is that AI’s effect on real estate is not just about how much the economy grows in aggregate, but about who grows, who contracts, where activity locates and how space is actually used. That is a compositional story, and it puts a premium on flexibility, asset quality, tenant mix and location strategy rather than on any single point forecast.
To structure this, the team built four scenarios. Importantly, the probabilities are deliberately conservative and do not sum to 100% — they leave room for outcomes nobody has modelled yet.
The Four Scenarios at a Glance
Baseline — Incremental Adoption (50% probability)
The most likely path. AI adoption is gradual and uneven, with firms directing early productivity gains toward efficiency and margin protection rather than aggressive hiring. U.S. GDP growth settles around a 2.5% annual average. For real estate this means subdued near-term office demand and elevated tenant churn, but no systematic collapse — instead, a growing divide between high-quality, well-located assets and everything else.
Upside — Productivity-Led Expansion (15% probability)
Here AI diffuses faster and firms successfully convert efficiency gains into revenue, innovation and hiring. Growth shows up not as “more of the same” but through new firms, new occupations and evolving space needs. Across property types, vacancy compresses earlier and more broadly than in the baseline. For industrial specifically, higher throughput and capital spending lift absorption.
Downside — AI Bust (25% probability)
Modelled on the dot-com experience: the technology ultimately delivers, but only after a period of overinvestment, firm failures and financial-market disruption. The stress here is about timing and capital markets, not technological failure. GDP undershoots in the near term, hiring is delayed, and office vacancy becomes the clearest pressure point. Notably, the report stresses these effects are cyclical rather than structural — they stabilize as macro conditions normalize.
Downside — AI Displacement (5% probability)
The least likely but most pointed scenario for industrial. Here AI substitutes for labour more than expected and revenue growth lags productivity. Office is hit hardest with structurally elevated vacancy. For industrial, automation dampens labour-driven space demand and vacancy stays moderately elevated — though structural supply constraints still provide a floor.
Vacancy Outlook by Sector
The report distills the four scenarios into a simple sector-by-sector vacancy outlook:
| Sector | Baseline (50%) | Upside (15%) | AI Bust (25%) | Displacement (5%) |
|---|---|---|---|---|
| Office | Elevated, slow decline | Faster compression | Higher for longer | Structurally high |
| Logistics & Industrial | Gradual decline from cyclical peak | Tightens faster | Temporary softening | Moderately elevated |
| Retail | Stable, supply-limited | Modest tightening | Slight deterioration | Stable to slightly weaker |
| Multifamily / Living | Peaks then eases | Faster normalization | Slower normalization | Elevated longer |
Why Industrial Holds Up Better Than Office
This is the part worth dwelling on. Throughout all four scenarios, logistics and industrial is consistently the more resilient asset class. The reason is structural: office demand is tightly linked to knowledge-worker headcount and space-per-worker, both of which AI pressures directly. Industrial demand, by contrast, is driven by throughput, efficiency and supply-chain optimization — and AI tends to enhance those rather than erode them.
Several points from the report stand out for industrial owners and occupiers:
- Automation supports demand, it does not replace it. Even as AI and robotics increase, traditional warehouse and manufacturing space remains essential. Demand continues to track population and consumption patterns over time.
- Modern, well-located, high-spec product wins. Data-adjacent facilities, automation-ready layouts and strong power capacity are increasingly the differentiators. Space utilization per worker is rising, which favours purpose-built modern buildings.
- Reshoring and supply-chain shifts are tailwinds. AI-enabled manufacturing and supply-chain optimization, combined with reshoring trends, support throughput and space demand — particularly relevant given current trade and tariff dynamics.
- Income durability supports investor appetite. Even where vacancy rises cyclically, the long-term demand visibility for quality industrial keeps capital interested.
For occupiers
The watchword is optionality. With near-term space needs genuinely uncertain under the baseline and downside cases, there is value in retaining flexibility — shorter commitments where it makes sense, expansion options, and a focus on buildings that can adapt. For industrial users specifically, prioritize automation-ready layouts, power capacity and location efficiency. The space you take today should still serve you as your operations evolve.
For landlords
Tenant retention matters more than ever, and quality is your defence. The report makes clear that demand increasingly concentrates in modern, flexible, well-located product. If you own that kind of asset, you are well-positioned across every scenario. If your building is older or functionally dated, now is the time to think about capital improvements, repositioning or conversion optionality before the market differentiates further.
For investors
AI does not eliminate real estate risk — it reshapes it. Capital markets act as an amplifier: where productivity gains translate into real revenue and absorption, pricing improves and liquidity broadens; where monetization is delayed, risk premiums stay elevated and capital concentrates in fewer, higher-quality assets. Industrial remains comparatively resilient across the board, supported by efficiency gains, capital spending and supply discipline. Pricing dispersion, asset selection and timing will separate the strong outcomes from the weak ones.
Final Thoughts: Prepare, Don’t Predict
The most valuable line in the whole report, to my mind, is this: in an AI-influenced environment, success depends less on predicting a single outcome and more on preparing for greater dispersion across assets, sectors and time horizons. Flexibility and quality are the primary risk mitigants.
For the GTA industrial market, the takeaway is encouraging. Industrial is the asset class best insulated from AI’s labour-market disruption, and the long-term demand drivers — consumption, logistics, reshoring, supply-chain modernization — remain intact. The work for owners and occupiers now is positioning: holding or building the right product, in the right location, with the right flexibility built in.
My team and I have been advising investors and occupiers in the GTA Central and GTA North industrial markets for over 30 years. If you are thinking through how to position your portfolio or your footprint for the decade ahead — whether you are looking to lease, sell, acquire or develop — we would be glad to talk it through.
For a confidential consultation or a complimentary opinion of value of your property please give us a call.
Specialties:
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development
About Cushman & Wakefield ULC.
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries.
In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.
For more information on GTA Industrial Real Estate Market or to discuss how they can assist you with your real estate needs please contact Goran at 416-756-5456, email at goran.brelih@cushwake.com, or visit www.goranbrelih.com.
Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih
Goran Brelih, SIOR
Executive Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
www.cushmanwakefield.com
Office: 416-756-5456
Mobile: 416-458-4264
Mail: goran.brelih@cushwake.com
Website: www.goranbrelih.com
