Tenants Gain Leverage as Sublets Flood the Market

Did you know that sublease availability in the GTA industrial market has soared to 6.3 million square feet in Q4 2024? This isn’t just a statistic—it’s a sign of a market undergoing significant change.

With total availability reaching a decade-high of 18 million square feet, the rise of sublets is transforming the rental landscape, giving tenants more choices and forcing landlords to rethink their strategies.

In this newsletter, we explore the sublet surge and its implications for the GTA industrial market’s future.

Read on to understand what’s driving this change—and how to position yourself for what’s next. 

The Sublet Boom: What’s Driving It and Why It Matters

The GTA industrial market, a powerhouse with its 834-million-square-foot inventory, is facing a perfect storm. Vacancy rates have spiked to a nine-year high, demand has dipped to an 11-year low, and sublets have emerged as a dominant force. In Q4 2024 alone, sublease availability ballooned to 6.3 million square feet, a sharp increase that’s amplifying an already elevated total availability of 18 million square feet. This isn’t just a blip—it’s a structural shift with big implications for tenants, landlords, and investors alike.

Tenants: More Choices, More Leverage

For tenants, the sublet surge is a golden opportunity wrapped in caution tape. With vacancy rates climbing—3.3% for spaces under 20,000 square feet and a hefty 5.9% for properties over 200,000 square feet—the market is tilting in their favor. Sublets offer a chance to snag flexible, often cheaper space in a region where direct leases still hover at $17.33 per square foot. Imagine a small logistics firm securing a 50,000-square-foot sublet at a discount, avoiding the long-term commitment of a direct lease. But there’s a catch: sublets often mean shorter terms and limited customization options, plus the risk of instability if the original tenant’s lease falters. Tenants who move fast and weigh these trade-offs can capitalize on this moment of abundance.

Landlords: Competing in a Crowded Field

Landlords, meanwhile, are feeling the squeeze. The flood of sublet space is a lifeline for filling vacancies, but it’s also a threat to rental stability. Sublets now make up a hefty chunk of available inventory, driving competition that could cap rental rate growth despite the $17.33 per square foot average. Prime properties in high-demand areas like Mississauga or Vaughan still hold strong, but secondary or aging spaces are losing ground to sublet alternatives. To stay ahead, landlords need to up their game—think modern upgrades, competitive terms, or targeting tenants with staying power, like e-commerce giants. The sublet wave isn’t just filling gaps; it’s pushing landlords to rethink how they attract and retain occupants.

Investors: Balancing Risk and Reward

Investors are at a crossroads. The sublet boom signals short-term uncertainty—rising availability and softening demand could dent property values, particularly for less desirable assets. Yet the GTA’s industrial market remains a North American juggernaut, with 33.0 million square feet of new supply in the pipeline by 2026 (which includes 14.4 MSF delivered in 2024) and a strategic role in logistics and trade. Smart investors might see this as a chance to scoop up undervalued properties, betting on a rebound as demand stabilizes. The key? Focus on quality—well-located, modern facilities that can weather the sublet storm and deliver long-term returns.

The Road Ahead: A Sublet-Driven Future?

What’s next for the sublet surge? Economic recovery could soak up excess space, shrinking sublet availability as tenants return. But with new construction adding pressure—33.0 million square feet by 2026—supply may outpace demand for a while yet. Vacancy rates are expected to plateau below equilibrium, per Cushman & Wakefield’s latest insights, hinting at a slow but steady recovery. For now, sublets are here to stay, reshaping rental dynamics and forcing all players to adapt. Whether it’s a tenant hunting for a deal, a landlord upgrading their portfolio, or an investor eyeing the long game, the sublet market is the trend to watch in 2025.

Strategic Takeaways

• Landlords: Flexibility—through competitive pricing, enhanced tenant incentives, or targeted property upgrades—will be key to filling vacant spaces. With sublets flooding the GTA market, differentiation is critical. Offering shorter lease terms or perks like rent abatement can attract tenants who might otherwise opt for sublet options, especially high-value tenants like e-commerce or logistics firms.
• Tenants: Now’s the time to negotiate favourable leases, especially in oversupplied submarkets like GTA East. With 6.3 million square feet of sublet space available, you have significant leverage. Push for lower rates, shorter terms, or added benefits like tenant improvement allowances to secure the best deal while carefully reviewing sublet agreements for potential risks.
• Investors: Focus on properties with strong fundamentals and long-term growth potential to weather short-term turbulence. The sublet surge signals temporary uncertainty, but the GTA industrial market’s status as a North American powerhouse endures. Prioritize high-quality assets in prime locations with modern features and stable tenants to ensure resilience and future appreciation.

Conclusion:

The GTA industrial market is in the midst of a sublet-driven transformation. Tenants can score flexible deals, landlords must innovate to stand out, and investors should play the long game with an eye on quality.

In this shifting landscape, one thing is clear: adaptability is your edge. Stay sharp, monitor the sublet trends, and position yourself to thrive.