Leveraging a Softer Industrial Market: Strategies for Tenants to Negotiate Key Incentives

In the Greater Toronto Area’s industrial real estate market, 2025 has brought a noticeable shift toward tenant-friendly conditions.

With availability rates climbing to around 5.0% in Q2 and projected to increase further by year-end, negative absorption, longer lease-up timelines, and a residual oversupply outpacing demand, landlords are increasingly motivated to compete for quality occupants. Average net asking rents are also moderating, expected to dip further from a $17.00 PSF net average in Q2, prompting owners to offer flexible terms to fill spaces quickly.

This softening—driven by economic uncertainties like U.S. tariffs and overall economic weakening —has opened doors for tenants to secure concessions that were scarce during the post-pandemic boom.

For industrial tenants, this environment presents a prime opportunity to negotiate incentives like free rent periods, rent reductions, and tenant improvement allowances (TIs) that improve operating cashflow and cost predictability.

That’s why, in this week’s issue, we’ll explore how to approach these discussions strategically.

Key Incentives and Their Value in Today’s Market

 Below are some core incentives, plus emerging ones gaining traction.

• Free Rent Periods (Rent Abatement): These offer 1-6 months of base rent relief at the lease outset, directly offsetting setup costs like relocation or inventory ramp-up. In higher-vacancy submarkets, landlords are granting 3-6 months (in some cases up to 1 year) to lock in 5-10 year commitments, especially for speculative builds with low pre-leasing (down to 16.4%). Value example: At $17 PSF Net, a 6-month free rent period saves $850,000 on a 100,000 sq. ft. space—critical for e-commerce operators or manufacturers facing tariff uncertainties.

• Rent Reductions and Stepped Structures: Negotiate base rates 5-15% below asking (e.g., $15-16 PSF Net in competitive GTA East vs. $17.79 in GTA North), or phased increases (e.g., flat for year 1, then 2% annual escalations). With rents sliding amid 7.3 million sq. ft. of incoming supply by year-end, this is ideal for older Class B/C assets or subleases, where limited interest amplifies leverage. Pro tip: Tie reductions to performance metrics like on-time occupancy to sweeten the deal for landlords.

Industrial Warehouse Operations. Source: Prologis.

• Tenant Improvement Allowances (TIs): Landlords can fund improvements for specialized upgrades like high-bay lighting, EV charging stations, or racking systems to help limit start-up costs for new tenants. In modern facilities targeting efficient operations, such as throughput volumes, this may cover a substantial portion of fit-out costs. Example: $5 PSF on 100,000 sq. ft. equates to $500,000, often with landlord-managed “turnkey” delivery to minimize tenant risk. Worth noting – these ‘warehouse upgrades’ are often offered in addition to ‘office build out’ allowances, meaning a prospective tenant may have a complete turnkey facility with minimal cost increases. Some costs may be amortized into the base rent beyond a threshold, but these incentives are often offered in lieu of debasing or devaluing ‘face’ asking rates.

• Operating Expense (OpEx) Caps: Limit pass-through costs (e.g., taxes, maintenance) to a fixed amount or base-year levels for 2-3 years, shielding tenants from inflation spikes (projected at 2-3% in 2026). In oversupplied markets, this is increasingly common for manufacturing tenants, potentially saving 5-8% on annual expenses.

• Escalation Caps and Renewal Options: Cap annual rent hikes at 2-3% (below market norms of 3-4%) and secure favourable renewal rights, like a 5-year extension at 95% of then-market rates. This provides predictability for industrial tenants, especially when future rental rates are still a mystery.

• Expansion Rights and Flexibility Clauses: Getting priority access to adjacent space (right of first refusal/offer) or subletting/assignment rights without penalties, appealing for scaling SMEs in tight small-bay segments (under 50,000 SF). In GTA’s fluid industrial market, this adds flexibility and an insurance net should market conditions tighten again closer to lease renewal.

These incentives not only reduce upfront costs but also enhance ROI, especially for logistics, manufacturing, or e-commerce firms optimizing for efficiency in a post-tariff landscape.

Actionable Strategies for Successful Negotiations

To capitalize on this tenant-favourable window, approach negotiations with data, preparation, and leverage. Here’s one way to do it:

1. Research Market Conditions Thoroughly: Arm yourself with current GTA stats—such as the 5.0% availability rate and negative absorption—to demonstrate awareness of the softening dynamics. Use reports to benchmark rents and concessions in your target submarket. Highlight comparable deals where landlords have offered free rent or TIs to legitimize your ask.

2. Build and Present Your Tenant Profile: Landlords prioritize “quality” tenants with strong credit, stable operations, and long-term potential. Emphasize your financials, growth plans, and how your occupancy adds value (e.g., low-risk logistics with automation). In exchange, propose incentives tied to lease length—such as extended free rent for a 10-year term—to make your offer mutually beneficial.

E-Commerce Warehouse Operations. Source: Choco-Up.

3. Time Your Approach Wisely: With deals taking longer due to increased options for tenants, start early—ideally 12-18 months before lease expiration. Target motivated landlords, like those with vacant new builds or sublease spaces, where urgency can yield deeper concessions. Avoid peak seasons; softer periods may amplify leverage.

4. Employ Specific Tactics for Each Incentive:
   • For free rent, request it upfront (e.g., first 3 months) and tie it to milestones like move-in completion. If unused TI funds remain, negotiate conversions to additional free rent periods.
   • For rent reductions, counter initial offers with data on declining rates, proposing abatements (e.g., 50% off months 4-6) or capped escalations. In fringe areas, push for face-rate cuts to reflect limited demand.
   • For TIs, specify the amount per square foot in the lease and include protections like requiring competitive bids for work to control costs. Aim for turnkey arrangements where the landlord handles improvements, reducing your risk.

5. Engage Professionals and Walk Away if Needed: Partner with a tenant-rep broker experienced in GTA industrial deals to uncover off-market opportunities and benchmark incentives. Review all terms legally to avoid hidden clauses. If negotiations stall, leverage competing offers— the market’s oversupply means you can credibly threaten to explore alternatives.

By focusing on these strategies, industrial tenants can turn the GTA’s current challenges into advantages, securing cost savings that bolster operations amid uncertainty.

With availability expected to further increase before potential stabilization, now is the time to act decisively. For personalized advice tailored to your needs, reach out to see how our team can assist.

Conclusion

In the GTA’s softening industrial market, tenants hold unprecedented leverage to secure impactful incentives like free rent, reduced rates, and generous TIs.

With availability at 5.0% and rents dipping to $17.00 per square foot, strategic negotiation—backed by market data, a strong tenant profile, and professional support—unlocks significant savings.

Emerging concessions like OpEx caps and expansion rights further enhance long-term value. Act swiftly to capitalize on this tenant-favourable window. Contact our team for tailored guidance to optimize your industrial lease in today’s dynamic GTA landscape.

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