Toronto’s retail market continues to experience significant pressure, with rising rents fueled by a shortage of quality spaces and resilient consumer demand. According to CBRE’s Retail Rent Survey, major retail hubs like Bloor-Yorkville, King Street West, and Ossington Avenue remain highly sought after, with experiential shopping and dining driving foot traffic.
However, these conditions pose challenges for smaller retailers, forcing some to consider emerging areas like the Canary District in the east end or Galleria on the Park in the west end.
Navigating Rising Rents
As inflation, higher interest rates, and property taxes push rents upward, CBRE Senior Vice President Jackson Turner notes that most tenants are willing to absorb reasonable increases.
“Tenants understand the economic environment and expect some rent escalation at the end of their lease,” says Turner. “As long as it’s reasonable, they’re generally open to it.”
For some tenants, however, exorbitant rental hikes threaten their business viability. If landlords overreach in attempts to offset mortgage costs, it could force closures among already struggling retailers.
Cost of Relocation vs. Staying Put
While relocating to cheaper locations is an option, the high cost of building out new spaces often leaves tenants with thin profit margins. Many prefer renewing their lease—even at a higher rent—over facing the financial strain of constructing a new store.
Landlords, too, are weighing their options. Some are willing to make minor rent concessions to retain tenants rather than risk prolonged vacancies and costly turnover.
“It’s all about the landlord-tenant relationship,” Turner explains. “When both sides are reasonable, agreements are reached quickly. But unreasonable demands can lead to lengthy disputes.”
Limited Supply, High Demand
The tight supply of retail spaces is further exacerbated by a slowdown in new developments. Investors are pausing projects in anticipation of stabilized construction costs and interest rates, leaving second-generation or quasi-fixtured spaces in high demand.
“Fixtured spaces are fetching premiums because tenants want to avoid the high cost of building from scratch,” says Turner.
Despite economic pressures, prime areas like King West and Ossington continue to thrive. Their appeal lies in a youthful, affluent demographic that prioritizes experiential spending over cutting back.
“Young consumers are spending on experiences, services, and essentials they aren’t willing to forgo,” Turner adds.
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