The window is open

After 2 years of lackluster large bay leasing performance, 2025 saw a strong return of leasing activity in spite of tariff related uncertainty, recording its highest leasing activity on record (20,179,528 sq. ft.), surpassing even the post‑COVID exuberance of 2021–2022* (see Figure 1). Despite this momentum, asking rents declined year‑over‑year across all segments, reflecting broader market uncertainty and a limited influx of new entrants, as the market continued to absorb surplus supply from 2023’s construction wave.

Criteria: GTA leasing activity measured by all transactions exceeding 50,000 sq. ft., excluding renewal deals

The year closed with positive net absorption of 6.6 million sq. ft. and completions totaling 11.8 million sq. ft. However, strong leasing has led to accelerating net absorption while completions are slowing. What does this tell us? From a broad market lens, demand for GTA industrial space remains resilient despite less‑than‑ideal macroeconomic conditions. Yet, when we narrow the focus to submarkets and asset classes, a quiet pressure point is forming — a heating Class A segment, and where there’s smoke, there’s fire.

Heading into 2025, large‑bay format space was abundant, with the majority of construction in 2023 and 2024 focused on this segment. Those two years accounted for 42.6% and 48.4% of total deliveries, or roughly 14.9 million square feet of rentable building area (large-bay format; defined here as a minimum of 300,000 square feet). Much of this space remained vacant at the start of 2025, as demand for large-bay facilities is generally more limited than for midsize properties—a trend seen across most industrial markets, where fewer tenants require such substantial footprints.

By mid‑2025, however, users could no longer delay leasing decisions. Growing operational needs, combined with attractive incentives and competitive rates, drove a wave of Class A absorption, particularly from large bay tenants. Activity accelerated further with the entry of Chinese 3PLs, who were particularly aggressive in securing space; one firm alone leased 771,000 square feet in 2025.

The outcome was clear: Class A stood apart as the only segment to record positive absorption in 2025 — by a wide margin (see Figure 2).

After several years of robust development activity, the GTA’s construction pipeline has slowed dramatically. Most projects currently underway are carry‑overs from the 2023–2024 cycle, with few new starts breaking ground. Given typical development lead times of at least 12 months, 2026 is expected to open with limited new supply — only 7.3 million square feet of large‑bay space is currently under construction (large-bay format; defined here as a minimum of 300,000 square feet). Approximately 35% of this space is pre-leased, leaving 4.75 million square feet available. This creates a narrow window in which demand is likely to outpace available inventory, assuming current absorption trends persist.

Pre‑leasing activity is strengthening, reaching 33.5% in Q4 2025 across all projects, while ongoing land‑readiness challenges continue to delay future developments. As a result, vacancy rates are likely to tighten further, even as broader market sentiment remains cautious.

Within the Class A segment, vacancy currently sits at 13%, down from the peak two quarters ago at 14.3%, but this figure is expected to continue to contract quickly through 2026 — raising the question: how should tenants prepare for this tightening leasing environment? See Figure 3.

For tenants with upcoming lease expirations, 2026 represents a narrowing window for securing quality space. With the construction pipeline at a cyclical low and large-bay vacancies projected to contract rapidly, delaying action could mean facing fewer options, higher rents, and stronger landlord leverage. In this environment, proactive tenants who lock in renewals or long-term commitments now can secure preferential terms, including incentives such as free rent, tenant improvement allowances, and greater flexibility on lease options.

Waiting could result not only in economic pressure but also limit access to optimal locations, operating efficiencies, and business continuity, see figure 4. As supply is set to fall short of demand, the risk of being left behind or forced into less desirable alternatives increases. By approaching negotiations early—whether for renewals or new leases—occupiers are better positioned to avoid the scramble and maintain leverage over terms and timing. In a tightening market cycle, a bird in hand is truly worth more than chasing uncertain deals later. Strategic decision-making today can translate to long-term operational and financial advantages as the market transitions into 2026 and beyond.