Toronto’s industrial real estate market has been booming in 2024, with demand for warehouse and logistics spaces surging, driven largely by the continued expansion of e-commerce. As more businesses shift to online retail, the need for last-mile delivery hubs, distribution centers, and fulfillment facilities has grown significantly, making industrial real estate one of the most sought-after sectors in the Greater Toronto Area (GTA). In this article, we’ll explore how e-commerce is fueling demand for industrial space in Toronto, the trends shaping this sector, and what it means for investors in 2024 and beyond.
The Rise of E-Commerce and Its Impact on Industrial Leasing
The growth of e-commerce has transformed the global retail landscape, and Canada is no exception. Online shopping, which saw exponential growth during the COVID-19 pandemic, has continued to expand as consumers increasingly prioritize convenience and fast delivery. In 2024, online retail sales in Canada are projected to reach $80 billion, a substantial increase from the pre-pandemic era.
This rapid growth has created immense demand for warehouse and logistics space, as companies look to optimize their supply chains to meet consumer expectations for quick and reliable deliveries. In Toronto, the industrial real estate market has benefited from this trend, with industrial leasing activity remaining robust throughout Q1 2024. According to the Toronto Regional Real Estate Board (TRREB), 3.1 million square feet of industrial space was leased in Q1 2024, accounting for over 60% of the total commercial leasing activity in the region.
One of the key drivers of this demand is the need for last-mile delivery facilities—warehouses and distribution centers located near urban areas that allow retailers to fulfill orders quickly and efficiently. As companies like Amazon, Walmart, and Canadian Tire expand their e-commerce operations, the demand for strategically located industrial space has surged, leading to higher lease rates and increased competition for available properties.
Rising Lease Rates Reflect Tight Supply
The strong demand for industrial space in Toronto has pushed lease rates to new highs in 2024. The average industrial lease rate in Q1 2024 reached $16.90 per square foot, an 8.7% increase from the $15.55 rate seen in the same period last year. This rise in leasing costs reflects the tight supply of industrial properties, particularly in areas close to major transportation hubs, such as Pearson International Airport and key highways like the 401 and 407.
In fact, vacancy rates for industrial properties in Toronto are near historic lows, with some estimates placing the vacancy rate below 1.5%. This limited availability of space has created a highly competitive environment for businesses looking to secure industrial real estate, further driving up lease rates.
For investors, this tight supply and rising demand present a significant opportunity. Properties in Toronto’s industrial sector are experiencing strong capital appreciation, and those able to acquire or develop industrial assets in key locations are likely to see favorable returns. With e-commerce growth showing no signs of slowing, the long-term outlook for industrial real estate in Toronto remains highly positive.
Key Sectors Driving Industrial Demand
While e-commerce is the primary driver of demand for industrial space, several other sectors are also contributing to the growth of this market:
- Logistics and Supply Chain Management: As companies seek to optimize their supply chains and improve efficiency, demand for logistics facilities, including warehouses and distribution centers, has increased. Third-party logistics providers, such as DHL and FedEx, are expanding their operations in the GTA to accommodate the growing volume of goods being shipped across the region.
- Manufacturing: Despite challenges posed by global supply chain disruptions, the manufacturing sector remains a key player in the industrial market. Companies in the automotive, aerospace, and food processing industries continue to require large-scale industrial spaces for production, storage, and distribution.
- Cold Storage: With the rise of online grocery shopping and demand for perishable goods, cold storage facilities are becoming increasingly important in Toronto’s industrial landscape. Supermarkets and food delivery companies are investing in temperature-controlled warehouses to ensure the safe storage and distribution of fresh produce and other perishable items.
- Technology and Data Centers: As digital transformation accelerates, data centers are becoming an integral part of the industrial real estate market. Companies in the technology sector are investing in secure, climate-controlled facilities to house servers and other critical infrastructure, further increasing demand for industrial space.
Industrial Development: Meeting Demand in a Tight Market
To meet the growing demand for industrial space, developers are ramping up construction projects across the GTA. Several large-scale industrial developments are currently underway, particularly in areas like Brampton, Mississauga, and Vaughan, where land availability and proximity to major transportation networks make them ideal locations for logistics and distribution hubs.
However, the pace of new development is being constrained by several factors, including land scarcity in urban areas and rising construction costs. As a result, many developers are turning to vertical industrial developments—multi-story warehouses and distribution centers designed to maximize space in areas where land is limited. These innovative projects are becoming more common in Toronto, as developers seek to balance the need for additional industrial space with the challenges of building in a densely populated region.
For investors, the development of new industrial properties offers an opportunity to capitalize on the continued demand for e-commerce and logistics infrastructure. Speculative developments—projects built without a pre-signed tenant—are becoming more attractive as developers anticipate strong demand from businesses looking to expand their supply chain operations.
What Does This Mean for Investors?
Toronto’s industrial real estate market presents a compelling opportunity for investors in 2024. With demand for logistics, warehousing, and distribution space driven by e-commerce and other key sectors, industrial properties are likely to see continued appreciation in both value and lease rates. The tight supply of available space, combined with rising demand, creates an environment where investors can expect strong rental income and capital growth.
Investors with an interest in REITs (Real Estate Investment Trusts) focused on industrial properties, or those looking to acquire individual assets, should focus on properties in prime locations close to transportation networks. Warehouses, distribution centers, and last-mile delivery hubs near urban centers are particularly well-positioned to benefit from the ongoing e-commerce boom.
However, investors should also be mindful of the challenges posed by rising construction costs and land scarcity. While the outlook for industrial real estate is positive, the development of new properties may face delays or increased costs due to supply chain disruptions and higher material prices. As a result, investors may want to consider existing industrial assets or developments already underway to minimize exposure to these risks.
Conclusion: Industrial Space Remains a Hot Commodity
The continued growth of e-commerce, logistics, and other industrial sectors is fueling demand for industrial space in Toronto, making it one of the most dynamic real estate markets in the GTA. With lease rates rising and vacancy rates at record lows, industrial properties are offering attractive opportunities for investors looking to capitalize on the strong demand for logistics and warehouse space.
As the market continues to evolve, industrial properties located in strategic locations near transportation hubs and urban centers will remain in high demand. For investors, now is the time to explore opportunities in Toronto’s booming industrial real estate sector and position themselves to benefit from the continued growth of e-commerce and logistics.
