From Small Bays to Mega Warehouses: Why Rents Are Softening Across the Board

Not all industrial properties are created equal.

Each has its own story; its unique opportunities and challenges.

From its location, access, and connectivity to its deeper specifications such as clear height, door ratio, power capabilities, and bay sizing, stakeholders will view value through their various lenses.

Add to this the financial constraints – whether in the context of a new build sitting vacant or an aged asset requiring a refresh through capital expenditures or redevelopment… deals can only happen where all Parties involved are willing and able to transact.

One thing is constant, however.

Deals in the Greater Toronto Area’s industrial market – whether a purchase, lease, or sublease – have become a grind.

Time and effort cures all; yet the clock ticks no matter what.

Creative landlords are becoming aggressive in their bids to secure tenants. The very same tenants who are leveraging market conditions to negotiate deals not seen since pre-pandemic. Either that, or they are bowing out and consolidating their footprints to fight another day.

As properties become vacant and join the growing list of competitors, and as renewals rinse and repeat through another cycle, the reshuffling will drive and solidify the tightening in rental rates.

This is the scene unfolding in the Greater Toronto Area’s industrial sector right now. Whether it’s a compact 10,000-square-foot unit or a sprawling 300,000-square-foot warehouse, rental pressure is easing, reshaping opportunities for tenants, landlords, and investors alike.

What’s behind this shift? And how can you position yourself to succeed in this changing environment?

In this newsletter, we unpack the latest trends, dive into the nuances across size ranges, and offer strategies to navigate this pivotal moment in the GTA’s industrial landscape.

The Rental Shift: Breaking Down the Size Ranges

The GTA industrial market is cooling off, with rental rates softening across all property sizes—a trend that’s been building over years and has hit a notable inflection point in 2024. Rising vacancy rates, a surge in supply, and a dip in demand are rewriting the rules.

Here’s how this plays out across different size segments:

Small-Bay Properties (Under 20,000 SF): Vacancy Challenges

Spaces under 20,000 square feet are under the most pressure, posting the highest vacancy rate at 5.9%. These small units—popular with startups, local manufacturers, or niche retailers—are seeing demand slip as economic uncertainty slows business growth. Despite fetching the highest rental rates at $18.06 per square foot, the elevated vacancy signals an oversupply. Tenants can leverage this for better deals, while landlords may need to cut rates or toss in incentives to fill these spaces.

Mid-Sized Properties (20,000-50,000 SF): A Middle Ground

The 20,000 to 50,000 square foot range sits at a vacancy rate of 3.9%, well below the market average of 4.66%. Used by regional distributors or expanding firms, this segment is feeling moderate strain as companies pause growth amid rising costs. Rental rates average $17.47 per square foot, but landlords are starting to sweeten deals with flexible terms or free rent periods. It’s a balanced segment—less volatile than smaller spaces but not as tight as larger ones.

Mid-to-Large Properties (50,000-100,000 SF): Steady but Softening

Properties between 50,000 and 100,000 square feet are faring the best, with a vacancy rate of 3.3%. These spaces, often leased by logistics providers or established manufacturers, benefit from consistent demand, though growth has slowed. Rental rates hover at $16.49 per square foot, and while options are slimmer here, sublease availability is keeping landlords on their toes. Tenants might still snag competitive leases if they move fast.

Large Properties (100,000-200,000 SF): Caught in Transition

The 100,000 to 200,000 square foot range has a vacancy rate of 5.0%, higher than mid-sized properties but below the segments at the ends of the size continuum. These facilities, key for manufacturing or distribution, are seeing rental rates dip but hold relatively strong at $17.19 per square foot as e-commerce growth cools and tenants rethink expansion. Proximity to infrastructure and modern construction specifications keeps them in play, but landlords may need to adjust pricing to stay competitive.

Mega Warehouses (200,000+ SF): Tightest Market, Strongest Demand

Warehouses over 200,000 square feet boast the second-highest vacancy rate at 5.2%, reflecting softening demand from major retailers and logistics giants. Rental rates here remain strong at $17.45 per square foot—typical for newer construction — however, these posted rates are often down significantly from their original guidance and many landlords are offering aggressive incentives such as free rent, fixturing periods, and tenant improvement allowances to secure the scarce number of businesses shopping in this size range.

The Big Picture: Supply Surge Meets Demand Slump

What’s fuelling this shift? The GTA is facing a triple threat: a historic supply boom, demand at an 11-year low, and the residual effects from economic pressures like inflation and higher interest rates experienced in 2022 and 2023. Sublease space has ballooned to 6.3 million square feet, intensifying competition. Yet, the average lease rate holds at $17.33 per square foot—still among North America’s priciest—showing the market’s underlying strength despite the cooldown.

Strategic Takeaways

• Landlords: Flexibility remains essential—adjust your strategy by property size to fill vacant spaces. For small spaces (under 20,000 SF), offer competitive pricing to attract steady demand from small businesses. For mid-to-large properties (20,000+ SF), enhance tenant incentives like rent abatement, flexible lease terms, or tenant improvement allowances to secure tenants quickly in a softening market.
• Tenants: Now’s the time to negotiate favourable leases, particularly in oversupplied segments. In mid-to-large properties (20,000+ SF), where landlords face higher vacancies, push for lower rates, shorter terms, or perks like tenant improvement allowances. In small-space segments (under 20,000 SF), competition is tighter—act swiftly to lock in advantageous deals before options shrink.
• Investors: Focus on properties with strong fundamentals and long-term growth potential to navigate short-term challenges. Target small to mid-sized assets (under 100,000 SF) in high-demand areas or larger facilities (100,000+ SF) near key logistics hubs like 401-series highways or Toronto Pearson International Airport. These properties balance current risks with future upside, while secondary markets or older assets may face prolonged pressure.

Conclusion:

The softening of rental pressure in the GTA industrial market isn’t a crisis—it’s an opportunity.

Tenants can lock in better rates, especially in larger spaces. Landlords need to adapt with competitive pricing or property enhancements. Investors should zero in on high-potential assets and play the long game. As supply settles and demand rebounds, stability will return.

The winners? Those who act with agility and vision. Keep watching this space for more insights on mastering this dynamic market.