As the Los Angeles Dodgers and Toronto Blue Jays compete on the baseball diamond, their home cities are engaged in a different kind of rivalry. Both Los Angeles and Toronto are major North American economic hubs, but their commercial real estate markets are facing significant headwinds, from high vacancies to affordability crises.
An analysis of the multifamily, office, industrial, and retail sectors in both cities reveals a complex picture of struggle and resilience. While each market contends with unique local pressures, they also reflect broader economic shifts impacting urban centers across the continent. This report breaks down the performance of each sector to determine which city holds the edge in the current real estate climate.
Key Takeaways
- Both Los Angeles and Toronto are experiencing elevated vacancy rates across multiple commercial real estate sectors, including office and retail.
- Toronto's multifamily market is defined by critical undersupply and severe affordability challenges, while Los Angeles faces an oversupply of new units.
- Return-to-office mandates are beginning to stabilize Toronto's office market, whereas Los Angeles continues to struggle with low physical attendance and negative rent growth.
- The industrial logistics markets in both cities are cooling after a period of high demand, with rising availability and moderating rent growth.
Multifamily Market: A Tale of Two Extremes
The apartment markets in Los Angeles and Toronto present sharply contrasting challenges. One city is grappling with too much new supply, while the other cannot build fast enough to meet demand, creating an affordability crisis.
Los Angeles: Facing an Oversupply
The Los Angeles apartment market is experiencing a slowdown. While demand for rentals has remained consistent with historical averages, a surge in new construction has outpaced the number of new renters. Over the past decade, the market has added approximately two new units for every one new renter.
This imbalance has pushed the vacancy rate to 5.4%, a ten-year high if the anomaly of 2020 is excluded. Despite this increase, L.A.'s vacancy rate remains one of the lowest among major U.S. cities. The primary effect of the oversupply has been stagnant rent growth. However, there are signs of a potential rebalancing, as new construction starts have recently slowed, which should allow demand to catch up with the existing supply pipeline.
Key challenges persist for the Los Angeles multifamily sector, including elevated unemployment, slow job growth, and a recent trend of population decline, all of which could dampen future rental demand.
Toronto: A Crisis of Affordability
In Toronto, the core issue is a critical undersupply of housing. Record population growth in recent years fueled a wave of rental construction, but it wasn't enough to ease market tightness. Now, affordability has become the dominant concern.
Record-high rents combined with limited wage growth and a slowing economy have shrunk the pool of renters who can afford available units. While population growth is now beginning to ease, and rental rates are expected to adjust, the market remains severely constrained. The hope is that as affordability improves, the new supply will better align with renter demand.
Office Space: Navigating the Hybrid Work Era
The shift to remote and hybrid work has left a lasting mark on the office sectors in both Los Angeles and Toronto. Both cities are dealing with high vacancy rates and uncertainty, though Toronto is showing earlier signs of a potential recovery.
Los Angeles: Persistent Structural Vacancy
The L.A. office market is facing significant distress, with a high vacancy rate of 15.9%. The tech and entertainment industries, once major drivers of leasing, have been largely inactive due to layoffs and corporate downsizing. Office attendance in the city remains below the national average as many employers embrace permanent hybrid models.
L.A. Office Market by the Numbers
- Vacancy Rate: 15.9%
- Yearly Occupancy Loss: 1.9 million square feet
- Rent Growth: -0.4%
- Obsolete Space Removed: 2.4 million square feet (demolished or converted)
This has led to negative rent growth, currently at -0.4%. In response, developers have largely paused new office projects. A notable trend is the conversion or demolition of older, obsolete office buildings. Over the past year, more than 2.4 million square feet of such space was taken off the market, a move that has helped prevent vacancies from climbing even higher.
Toronto: Glimmers of a Rebound
Toronto's office market has also been under prolonged pressure, losing 2.6 million square feet of occupancy in the past year. However, recent quarters suggest a turnaround may be underway. Return-to-office mandates from major banks and the government are fueling a noticeable uptick in leasing activity.
Simultaneously, the final wave of large-scale office projects started before the pandemic is set to be completed by the end of the year. This will halt the steady influx of new supply that has contributed to rising vacancy. While still fragile, early indicators suggest that effective rents in downtown's newest towers are beginning to rise again.
Industrial Sector: Cooling After a Red-Hot Run
Once the top performers in commercial real estate, the industrial and logistics markets in both cities are now experiencing a correction as demand normalizes from its pandemic-era peak.
Los Angeles: A Three-Year Slump
The once-dominant Los Angeles industrial market is in a slump. A sustained drop in demand has pushed space availability to 8.2%, a level not seen in over a decade. This has forced landlords to significantly reduce market rents.
In fact, over the past year, only two other markets in North America and Europe—the adjacent Inland Empire and Montréal—have seen more severe rent declines. While trends in container shipping suggest imports may remain moderate through 2025, leasing activity has started to increase again. Furthermore, with only 4 million square feet of new supply under construction in a market of nearly one billion square feet, conditions could tighten again quickly.
Toronto: Navigating Uncertainty
As one of North America's largest logistics hubs, Toronto saw a recent wave of speculative construction of large warehouses. Many of these buildings are now being delivered at a time of heightened business uncertainty and normalizing consumer demand. This has increased available space and softened the record-high rents seen over the past few years.
However, Toronto's industrial supply is structurally constrained due to regulatory hurdles. This suggests the market could return to a more balanced state by next year, especially if economic conditions stabilize.
Retail Market: Facing Headwinds and Transformation
Retail real estate in both cities is adapting to slowing consumer spending and the continued evolution of e-commerce. Older properties are struggling, while demand for modern, experience-oriented spaces persists.
Los Angeles: Struggling with Aging Inventory
The Los Angeles retail market is characterized by elevated vacancy and low demand. A significant challenge is its aging inventory; more than half of the city's retail space was built before 1980, and these older properties account for most of the current vacancies.
The current vacancy rate of 5.9% is the highest on record for the city. Closures of underperforming national chain stores have contributed to this rise. Slowing consumer spending has also limited retailers' expansion plans. With rent growth currently negative, the market's recovery may depend on its limited pipeline of new supply, which could help tighten conditions over time.
Toronto: Vacancy Expands but Market Remains Tight
For the first time in nearly a decade, Toronto's retail vacancy has expanded notably, rising 100 basis points in the past year. This has been driven by a slowing economy, easing population growth, and the closure of major department stores.
Despite this, the market remains relatively tight, with a vacancy rate trending just above 2%. Demand for grocery-anchored retail centers has proven resilient. Limited new supply should also help prevent vacancy from rising much further, providing a stable foundation for the sector moving forward.
