GUEST SUBMISSION: It’s obvious to most players in the Greater Toronto Area industrial leasing market that the sector has slowed over the past 24 months. 

What’s less obvious and quite intriguing about the subdued period we find ourselves in now, are the secondary effects this has created.

A confluence of factors related to higher vacancy and a frozen development pipeline has resulted in some interesting trends first noticed anecdotally by those on the ground, but which are now starting to reflect in the data.

A class divide

When one considers different classes of industrial properties, there are no doubt several property attributes that contribute. But perhaps the most reflective, and the attribute that instantly provides a fairly reasonable approximation of property class (not to mention age), is clear height.

Higher clear heights serve a functional purpose (more critical for some occupiers than others) by providing vertical cubic feet that compliment the two-dimensional square footage measure more traditionally indicative of the amount of space in a property. This allows for greater vertical utilization in the form of racking/storage, cranes, second-level mezzanines, etc.

Since this more efficient space utilization allows occupiers to store more goods or implement operations that might be restricted in lower-clear-height properties, higher clear heights are generally more sought-after by occupiers. 

The other link that can be made between clear height and property class relates to building age. Properties constructed in the '70s, '80s, and '90s, which comprise much of the GTA's inventory, were generally of lower clear height than properties built more recently. 

Older properties often have clear heights of 16-24 feet, with the majority at either 16 or 18 feet. Contrast this with properties built post-2000, and certainly post-2010, that typically have clear heights of 28 feet or more, reaching as high as 40 feet on some modern large-scale developments. 

Classifying these properties by quality is somewhat subjective, but generally those with lower clear heights (16-20 feet) and a few other “warts” could be considered class-C, while those with clear heights in the range of 18-28 feet with good functionality would be considered class-B. Newer properties of 28-plus feet, which often have other appealing features (precast construction, LED lighting, efficient shipping) would be considered class-A.

There are nuances and outliers, but these parameters are a pretty good rule of thumb.

Transaction data tells the story

Intuitively, one would think when it comes to lease rates, lower clear height and thus lower class would provide a discount versus higher-class properties, but is that actually the case?

Anecdotally, it didn’t seem to be during the red-hot industrial market of 2021-2023 when vacancy dropped below one per cent and product was hard to find. In that environment, when tenants struggled to find viable spaces, there didn’t seem to be much of a spectrum when it came to rates, whether class-A, -B or -C. 

In today’s more balanced market, a division is starting to occur.

To validate this perception, let’s look at data from transactions in the Toronto Regional Real Estate Board (TRREB) database. Here is the methodology:

• To keep things simple I broke industrial properties into two classes: clear heights from 16-25 feet (we’ll call these class-B), and clear heights from 26-40 feet (class-A). 
• I included properties in all core GTA markets: Toronto, York, Peel, Halton and Durham.
• I considered only properties from 20,000-100,000 square feet to keep the quantity manageable.
• I looked at actual, transacted net lease rates, not asking rates.

I looked at three time periods:

• All of 2022, a peak year in the market.
• All of 2025, the most recent full calendar year.
• Q4 of 2025, which provides insights into whether there is a more recent shift occurring. 

Here are the results:

2022

• Average net lease rate of all class-B properties = $15.
• Average net lease rate of all class-A properties = $15.
• Class delta = $0

2025

• Average net lease rate of all class-B properties = $15.
• Average net lease rate of all class-A properties = $17.
• Class delta = $2.

Only Q4 of 2025

• Average net lease rate of all class-B properties = $14.
• Average net lease rate of all class-A properties = $18.
• Class delta = $4

It’s interesting that in 2022 there was no difference in rates (on aggregate, on average) between different classes of product, whereas in 2025 there was a spread of $2, and in Q4 2025 alone that widened to $4.

Also of note is that, while for the full year 2025 the spread was caused solely by an upward shift in the class-A properties, Q4 2025 data shows this upward shift was accompanied by a decline on class-B rates. 

What does this mean?

Simply put, tenants have a lot more choice as vacancy has risen, and with that comes the ability to exercise discretion. If tenants are going to exercise that freedom to select an inferior product, it’ll generally only be because they're getting it at a discount versus superior options. 

Why would a tenant with options, one at 18-feet clear height and one at 28 feet, choose the lower option if they're priced exactly the same? Even if clear height is not a critical factor, hypothetically speaking if all else is equal the choice will usually be for the better product. Thus landlords of lower-class buildings must incentivize occupiers basking in their newfound optionality by providing a “discount.”

In 2022, this dynamic did not exist because the one per cent vacancy market was so weighted in the landlord’s favour, tenants settled for whatever they could find. In a market with no supply and where the “consumers” have very little choice, there is very little price elasticity.

Second, as the speculative development pipeline has dried up, and as larger-bay spec product is absorbed (quite pronounced in Q4 2025), new class-A product is becoming less abundant.

As the market faded toward the end of 2023 and into 2024, a relative abundance of new product had a dampening effect on rates for high-quality, modern properties. As that pipeline is absorbed (with very little product coming behind it), those price dampers are slowing loosening.

Finally, ownership of class-A product is much more concentrated among larger and institutional landlords, versus the broader spectrum of ownership profiles for lower-class product where landlords are often smaller and private.

Institutional landlords typically have a greater capacity to remain firm on pricing and to float vacant properties, meaning they're less likely to be aggressive in reducing asking rates. This factor has, no doubt, further contributed to the “stickiness” in class-A rates.

This combination of greater tenant choice, class-A spec product absorption, and different ownership profiles has resulted in a real decoupling between different classes, most obviously seen through the attribute of clear height.

This dynamic mirrors what was seen in the office market after a period of slowness and a greater abundance of options for tenants. They migrated to class-A product and settled for inferior product only when cost savings warranted, thus pushing down rates for those properties while rates on the highest-quality properties remained resilient.

Looking ahead

If the industrial market continues along this slowing or even flattening trajectory, and if absorption continues for new class-A industrial space with little to no new supply, this pricing delta may continue to grow. 

I was talking to someone at an industry event recently who said they heard of some institutional landlords considering new speculative development projects, something unheard of 12 or even six months ago.

Could this class-A price resilience be a factor?