Before baseball’s World Series was decided on the diamond, Los Angeles prevailed in a different one played off the field, according to CoStar.

L.A. beat its northern rival 3-1 in the Commercial Real Estate World Series, said CoStar, which evaluated the two markets according to the four conventional asset classes. Tinseltown outscored Canada’s largest market in multi-family, office and retail. However, Toronto prevailed in industrial.

But the off-field battle was nowhere near as riveting as the on-field nailbiter, and neither city deserved post-season berths, Co-Star indicated.

“Both cities have suffered from high vacancies across office, industrial, retail, and multi-family property, hardly playoff material in the world of commercial real estate,” said the company.

In the apartment market, L.A. has experienced a slowdown this year but continues to perform well in comparison to national trends. Demand has remained consistent even though vacancy reached a decade-high, excluding pandemic-ravaged 2020, at 5.4%.

On the other hand, Toronto’s multi-family market remains “critically undersupplied,” said CoStar. While record population growth drove unprecedented rental-housing construction starts, limited wage growth and a slowing economy have made record-high rents unaffordable.

Meanwhile, the L.A. office market is dealing with significant challenges as vacancy remains high at 15.9%, the entertainment and tech sectors have been largely inactive when it comes to leasing due to contractions and layoffs, and in-office work remains below the national average. As a result, rent growth is negative (-0.4%), most developers have paused new builds until the vacancy situation is sorted out, and many older buildings are in less demand and being repurposed.

Toronto’s recovering office market is performing even worse due to pandemic-induced shifts to hybrid and remote work that have diminished demand. But CoStar noted that major banks and provincial government’s return-to-office mandates are fuelling a “solid upturn” in leasing activity. And, the final wave of megaprojects initiated before the pandemic, will be completed by year-end 2025, closing the tap on new supply that has increased vacancy.

“Headline rental growth remains modestly positive, and early indications suggest net effective rents in the downtown core are beginning to rise again, especially in new towers,” said CoStar.

In the industrial sector, L.A. is no longer a perennial all-star due to a three-year slump in demand, which continues to fall albeit more moderately, according to the company. For the first time in more than a decade, availability has risen to 8.2%, prompting owners to slash rents. Only California’s Inland Empire and Montreal has seen bigger rent reductions, according to CoStar.

But the company suggests that L.A.’s industrial sector could bounce back, despite signs that container-shipping trends might dampen imports through 2025.

“Leasing activity has ramped up again, and only four million square feet of supply is under
construction, a minuscule amount for a market containing nearly a billion square feet of existing supply,” said CoStar.

Toronto’s logistics market, one of the largest and tightest in North America, has gained from a surge in speculative construction of new large-bay warehouses. But many of the buildings are being delivered among heightened business uncertainty, primarily due to the North American trade war as well as a normalization of post-pandemic demand.

As a result, increased availability has softened record-high rents over the past year. But a supply pipeline constrained mainly for regulatory reasons could return to balanced conditions by 2026, “especially if trade tensions between Canada and the U.S. recede,” said CoStar.

In the retail sector, Toronto took a questionable called third strike from CoStar as neither city shined. The L.A. retail market is experiencing elevated vacancy as demand and rents decline. Closures of national retail outlets have pushed vacancy, especially in mid-sized spaces, upward. Vacancy is at a record high (5.9%) but has only risen 34 basis points in the past year. Limited new supply could improve market conditions over time, according to CoStar.

Reduced population growth, Canada’s slowing economy, and the closures of Hudson’s Bay Company and other department stores have resulted in Toronto’s first notable retail vacancy increase (1%) in more than a decade. As a result, rent growth has moderated, but retailers still face tight market conditions as vacancy trends slightly above 2%.

“Demand for grocery-anchored properties has remained more resilient, and supply pressures are limited, which should help prevent vacancy from climbing much higher,” said CoStar.

According to CoStar’s analytics, Toronto posted the highest annual rent growth in three of the four asset classes, with L.A. only higher in retail. When it came to annual demand and vacancy change (in other words, improvement), L.A. prevailed in office, retail and multi-family.

But Toronto was better in industrial.

Pictured: Downtown Toronto.

Photo: Shutterstock