From Slowdown to Stabilization: GTA Industrial Outlook Through Mid-2026

The latest data on Canadian Cap Rates and Capital Markets paints a nuanced picture of the industrial sector amid broader economic shifts. In the Greater Toronto Area, which remains Canada’s industrial powerhouse, activity continues to dominate national trends despite headwinds.

With Toronto contributing nearly $2.6 billion in industrial sales volumes year-to-date—representing almost half of Canada’s total—the region underscores its appeal for investors seeking scale, connectivity, and tenant stability.

However, the sector faces challenges, including a nationwide vacancy rate climbing to 5.5%, negative net absorption of 1.9 million square feet, and softening asking rents.

These factors, coupled with elevated borrowing costs and development uncertainty, have led to a 28.9% year-over-year decline in transaction volumes nationally, with the GTA mirroring this slowdown.

Yet, the industrial market’s resilience shines through, driven by private investors and user purchases focusing on high-performing assets.

As manufacturing and consumer sectors adjust to higher prices and weaker demand, cap rates in the GTA have edged upward, signalling cautious optimism.

For this week’s issue, we’ll dive into key metrics, trends, and outlooks to help inform stakeholders navigating this dynamic landscape.

Sales Volumes and Market Activity in the GTA

The GTA’s industrial sector led all asset classes in investment activity during the first half of 2025, but not without contraction. Toronto, as the core of the GTA, recorded approximately $2.6 billion in industrial sales volumes YTD, accounting for nearly 50% of Canada’s overall industrial transactions totaling over $5.2 billion. 

This positions the GTA as the most active industrial market in the country, outpacing other major centers like Montreal and Vancouver. Despite this leadership, volumes reflect a 28.9% decline compared to the same period in 2024, aligning with the broader Canadian real estate investment market drop.

This slowdown stems from softening fundamentals. Nationally, industrial vacancy rates rose to 5.5%, a notable increase that has begun to weigh on investor sentiment in the GTA. The region experienced negative net absorption of 1.9 million square feet, indicating an oversupply relative to demand.

New supply deliveries have slowed, but existing inventory pressures persist, particularly as asking net rents continue to decline. Deal sizes have contracted, with transactions shifting toward smaller, more stable assets.

Private investors and end-users dominate, prioritizing properties with strong connectivity to transportation hubs and reliable tenant bases. For instance, logistics and distribution facilities in prime GTA locations like Mississauga and Brampton remain sought after, benefiting from proximity to highways and airports.

In comparison to other sectors within the GTA, industrial outperforms significantly. As an aside, the data also highlights Toronto’s industrial sales severely outperforming other asset classes, such as multifamily ($400 million), retail ($1.2 billion), and office ($600 million). This resilience is partly due to the sector’s defensive characteristics—essential for e-commerce, manufacturing, and supply chain operations—even as economic uncertainties loom.

Cap Rates and Valuation Trends

Cap rates for industrial properties in the GTA have remained relatively flat, despite heightened risk perceptions and economic adjustments. According to the data, industrial cap rates in Toronto range from 5.25% (low) to 6.00% (high) for Class A product, while Class B product cap rates range from 5.50% (low) to 6.50% (high). We expect a continued trajectory looking forward, especially now that interest rates have fallen.

This range positions the GTA’s industrial cap rates higher than Vancouver (4.50%-5.50%) but lower or on par with every other major Canadian market, especially when it comes to Class A properties. Institutional allocations to commercial real estate remain steady near 11%, but focus on diversified portfolios favours assets with income stability and growth potential, which industrial properties in prime GTA locations continue to offer.

However, niche subsectors like data centers are capturing growing volumes, potentially diverting capital from traditional industrial spaces. In the GTA, this translates to selective investment in modern, high-bay warehouses over older stock, with cap rates for premium assets trending toward the lower end of the spectrum.

Outlook and Key Drivers

Looking ahead, the industrial sector in the GTA faces persistent vacancy pressures through mid-2026, as manufacturing and consumer sectors recalibrate to elevated prices and subdued demand. We forecast continued softening, with vacancy likely to rise further before stabilizing. This could exacerbate negative absorption, particularly if new supply—though arriving at a slower pace—outstrips leasing activity.

Despite these challenges, positive drivers abound. High-performing properties in prime locations, such as those near Pearson International Airport or along the 401 corridor, lead the pack with strong tenant demand from e-commerce giants and logistics firms. The GTA’s unparalleled scale and infrastructure connectivity bolster its attractiveness, with user purchases sustaining activity amid cautious institutional involvement. Cost and availability of capital have improved slightly, with public REIT pricing rebounding off troughs, though still negative; this could support acquisitions if borrowing conditions ease further.

We find ourselves in a diverse landscape: while overall volumes contract, opportunities emerge. For example, industrial parks in nodes like Vaughan and Mississauga show promise, with potential for rental growth once absorption turns positive. Investors are advised to prioritize assets with long-term leases and inflation-hedged rents to mitigate risks.

In summary, the GTA’s industrial market, while navigating headwinds, retains its status as Canada’s most active, with strategic investments poised to yield returns as the cycle evolves.

Conclusion:

In conclusion, the GTA’s industrial sector is a beacon of relative strength in a challenging Canadian real estate environment. With cap rates at 5.00%-6.50% and an upward trajectory, alongside $2.6 billion in YTD sales, the region demonstrates enduring appeal despite rising vacancies and softening rents.

As economic adjustments continue through mid-2026, savvy investors focusing on prime, connected assets will likely capitalize on stabilization opportunities. Overall, the GTA’s industrial market offers a balanced risk-reward profile, underscoring the importance of due diligence and long-term vision in navigating forthcoming shifts.

For a confidential consultation or a complimentary opinion of value of your property please give us a call.

Until next week…

Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 30 years.

Goran Brelih is an Executive Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.

Over the past 30 years, he has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars while averaging between 40 and 50 transactions per year and achieving the highest level of sales, from the President’s Round Table to Top Ten in GTA and the National Top Ten.

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