Trump’s Tariffs in 2025: Transforming Toronto’s Commercial Real Estate Landscape
In the wake of President Trump’s executive order introducing substantial tariffs on Canadian exports, Toronto’s commercial real estate sector stands at a critical juncture of uncertainty and transformation. The implementation of the Trump Tariffs, with a 25% levy on Canadian goods, has sent ripples through Toronto’s business community, triggering a wave of change.
The Trump Tariffs, which came into effect in early 2025, have had far-reaching implications for Toronto’s commercial real estate market. The trade tensions resulting from these tariffs have already contributed to a 27.4% year-over-year plunge in Toronto’s overall real estate sales for February 2025. This has created an environment where property owners, tenants, and investors are scrambling to adjust their strategies to navigate the evolving landscape.
uncertainty and transformation. The implementation of a 25% tariff on Canadian goods in early 2025 has sent ripples through Toronto’s business community, with far-reaching implications for the city’s commercial real estate market. The trade tensions have already contributed to a 27.4% year-over-year plunge in Toronto’s overall real estate sales for February 2025, creating an environment where property owners, tenants, and investors are scrambling to adjust their strategies1. This report examines how these tariffs are reshaping the commercial real estate landscape in Toronto, with particular attention to the varying impacts across office, retail, and industrial sectors, while exploring adaptive strategies for stakeholders navigating this period of economic turbulence.
The Trump Tariffs Landscape and Its Economic Context
The current trade conflict between the United States and Canada officially escalated on March 4, 2025, when the U.S. imposed 25% tariffs on Canadian exports, with energy and critical minerals receiving a slightly reduced 10% tariff2. In swift retaliation, Prime Minister Justin Trudeau announced immediate 25% countermeasures on $30 billion worth of U.S. goods, with plans to extend these tariffs to an additional $125 billion in American products if the situation remains unresolved within 21 days2. This economic standoff represents one of the most significant trade disputes between the two nations in recent history, creating a complex web of consequences for businesses operating in both countries.
The tariffs come at a particularly vulnerable time for Toronto’s real estate market, which was already experiencing challenges before the trade conflict. Despite previous interest rate cuts intended to stimulate growth, the market had shown minimal signs of recovery, with the Toronto Regional Real Estate Board (TRREB) reporting historically low sales figures even before Trump’s election and subsequent tariff implementation1. While the TRREB and some media outlets have largely attributed the current downturn to uncertainty surrounding Trump tariffs, data suggests the market was already struggling with fundamental issues related to affordability, inventory levels, and buyer confidence.
The economic implications extend beyond immediate price increases for imported goods. The executive order also emphasizes enhanced border security and increased inspections, which will inevitably slow cross-border commerce and disrupt established supply chains5. These additional friction points in trade could potentially transform the Canadian economy and impede economic growth, all of which directly influence the health and trajectory of Toronto’s commercial real estate sector.
Sector-Specific Impacts on Commercial Real Estate
The ripple effects of these tariffs are manifesting differently across various segments of Toronto’s commercial real estate landscape, creating a patchwork of challenges and, in some cases, unexpected opportunities.
Industrial Real Estate: Supply Chain Disruption and Warehouse Reconfiguration
The industrial sector, particularly warehousing and logistics properties, stands at the epicentre of tariff-related disruptions. As a significant portion of Toronto’s industrial real estate is dedicated to warehousing consumer and manufactured goods, the supply chain turbulence caused by tariffs directly impacts these properties3. Distribution centers handling U.S.-imported products now face higher inventory costs, potentially forcing operational changes that could alter space requirements and location preferences.
Warehousing facilities serving retail and e-commerce operations are experiencing particular pressure as businesses reconsider their inventory management strategies. Many companies are now evaluating whether to maintain larger inventory buffers to mitigate supply chain uncertainties, potentially increasing demand for certain types of industrial space. Conversely, if businesses opt to diversify their supply chains away from U.S. sources, this could lead to reconfiguration needs for existing warehouse spaces to accommodate different shipping patterns and product specifications.
Manufacturing-centric industrial properties face their own set of challenges. With building materials and production inputs from the U.S. now subject to substantial tariffs, manufacturing operations in Toronto are experiencing cost pressures that could influence their real estate decisions3. Companies may delay expansion plans or seek smaller footprints to offset rising operational costs. Additionally, some manufacturers may explore relocating production to avoid cross-border tariffs entirely, potentially leaving industrial vacancies in their wake.
The logistics subsector of industrial real estate is witnessing transformation as well. Properties serving as cross-docking facilities or transportation hubs must now navigate the increased border inspection measures outlined in the presidential executive order5. These heightened security procedures at the U.S.-Canada border create unpredictable delays, requiring logistics operators to rethink their delivery timeframes and potentially adjust their real estate footprints to accommodate longer inventory holding periods.
Retail Properties: Shifting Consumer Behavior and Merchandising Challenges
Retail real estate in Toronto faces a complex set of challenges as tariffs alter both consumer behaviour and retailer operations. Shopping centers, particularly those anchored by grocery stores or featuring significant U.S. brand presence, are experiencing the most immediate effects. The 25% tariffs on American products are compelling retailers to either absorb the additional costs—squeezing their margins and potentially affecting their ability to maintain current lease arrangements—or pass these costs to consumers, potentially reducing foot traffic3.
Grocery-anchored retail centers, previously considered relatively recession-resistant investments, now face uncertainty as food prices increase and consumer spending patterns shift. As noted by industry experts, even these stable retail properties could experience performance changes if tariffs substantially curb consumer spending power or dramatically alter shopping preferences3. Retailers are already responding by adjusting their merchandise mix, potentially favouring Canadian-produced items or products from non-U.S. international sources not subject to the current tariffs.
An interesting countertrend is emerging, however, with some Toronto businesses reporting increased sales as consumers deliberately choose to “shop local” during this period of trade uncertainty4. This shift in consumer behaviour could potentially benefit certain retail properties, particularly those hosting predominantly Canadian retailers or those selling locally-produced goods. Small, locally-focused shopping districts may find themselves unexpectedly advantaged in this new landscape, while large power centers featuring primarily U.S. chain stores could face greater challenges.
The differentiation between large and small retailers is becoming increasingly pronounced. While larger retail chains often have the financial reserves and operational flexibility to weather tariff-related cost increases, small businesses—such as independent boutiques, specialty food shops, and local service providers—typically lack these resources4. This disparity could lead to changes in the tenant mix within retail properties, potentially favouring larger, more financially robust retailers in prime locations while creating vacancies in secondary markets or properties.
Office Properties: Confidence Crisis and Occupancy Concerns
Toronto’s office sector, already navigating the complex post-pandemic landscape of hybrid work arrangements and changing space needs, now faces additional headwinds from tariff-induced economic uncertainty. As noted by real estate experts, the office market is particularly sensitive to tenant confidence3. When businesses face economic uncertainty—such as that created by unpredictable trade policies—they often delay expansion plans, reduce hiring, or postpone major lease commitments, all of which directly impact office occupancy rates and rental growth.
The confidence factor manifests most immediately in leasing activity. Businesses concerned about rising operational costs due to tariffs and potential economic slowdown are displaying increased caution in their real estate decisions. This hesitancy extends beyond immediate space needs to impact forward-looking investment in office properties, as investors similarly question future demand patterns in a tariff-affected economy3.
Office properties and housing businesses with significant U.S. trade exposure face particular vulnerability. Companies in sectors heavily dependent on cross-border commerce—such as logistics services, certain manufacturing segments, and import/export businesses—may need to significantly restructure their operations in response to tariffs. This restructuring could lead to downsizing office footprints or relocating to less expensive submarkets, creating potential vacancies in prime office buildings.
The impact varies significantly by office submarket and building class. Premium Class A office space may prove more resilient as it typically houses larger corporate tenants with greater financial flexibility to absorb tariff-related cost increases. In contrast, Class B and C office properties, often home to smaller businesses with tighter margins, could experience more immediate occupancy challenges as these tenants feel the financial pressure of the changing trade landscape.
Cost Implications for Tenants and Property Owners
The introduction of tariffs creates a complex web of cost increases that affect both commercial tenants and property owners in Toronto’s real estate market. Understanding these financial impacts is crucial for stakeholders attempting to navigate the changing landscape.
Operational Cost Increases for Tenants
Commercial tenants across all property types are experiencing rising operational costs directly attributable to tariffs. For retail tenants, the 25% tariff on U.S. imports dramatically increases inventory costs, potentially reducing profit margins unless these costs can be passed to consumers2. Industrial tenants face higher expenses for equipment, materials, and logistical services, all of which squeeze operational budgets that might otherwise fund real estate expansion5. Office tenants, while perhaps less directly impacted by product tariffs, nevertheless face cost pressures from general inflation and economic uncertainty that influence their real estate decisions.
These operational cost increases are particularly challenging for small businesses, which typically lack the financial reserves to absorb sudden price hikes4. As noted by Toronto-based apparel brand Province of Canada, even businesses focused on Canadian manufacturing often depend on U.S. inputs—such as cotton that cannot be grown domestically—exposing them to tariff impacts despite their primarily local operations4. This reality forces many small business tenants to make difficult choices between absorbing costs (potentially threatening their viability), passing costs to customers (potentially reducing sales), or seeking less expensive real estate options.
Construction and Development Cost Escalation
For property owners and developers, tariffs significantly impact construction and renovation costs. The Residential Construction Council of Ontario has explicitly warned that Trump’s tariffs will lead to substantial price increases for building materials, directly affecting development economics3. These higher construction costs arrive at a particularly challenging time, as the industry was already struggling with elevated material prices, labour shortages, and rising interest rates prior to the tariff implementation.
The cost increases affect not only new development but also property improvements and tenant build-outs. Commercial landlords often provide tenant improvement allowances or undertake building renovations to attract and retain tenants. With construction materials now subject to tariffs, these improvements become more expensive, potentially reducing landlords’ ability to offer competitive incentives or forcing them to pass these costs to tenants through higher rents or reduced concessions.
Property Valuation and Investment Implications
The tariff situation creates significant implications for commercial property valuations and investment strategies. Properties housing tenants with high exposure to tariff impacts may face increased vacancy risk, potentially leading to lower valuations5. Conversely, properties occupied by tenants selling primarily Canadian-produced goods or services may gain a relative stability advantage.
Investors must now incorporate tariff-related risks into their underwriting models, potentially leading to higher cap rate requirements for properties with significant exposure to sectors affected by trade tensions. This recalibration of risk could result in downward pressure on certain property values, particularly those with tenant rosters heavily dependent on U.S. trade or those requiring significant capital improvements that will now cost more due to tariffed materials.
The uncertainty surrounding how long these tariffs might remain in place further complicates investment decision-making. As the Canadian government has signalled potential non-tariff measures if the trade dispute escalates, investors must consider scenarios ranging from quick resolution to prolonged economic conflict2. This uncertainty may lead some investors to adopt a wait-and-see approach, potentially reducing transaction volumes in Toronto’s commercial real estate market in the near term.
Adaptation Strategies for Commercial Real Estate Stakeholders
Despite the challenges posed by the current tariff situation, several strategic approaches are emerging that may help commercial real estate stakeholders navigate the changing landscape.
Supply Chain Reconfiguration and Sourcing Alternatives
Businesses operating in Toronto’s commercial spaces are actively exploring supply chain adjustments to mitigate tariff impacts. As exemplified by the Province of Canada’s consideration of alternatives to U.S. cotton, many companies are evaluating non-U.S. sources for key inputs4. This pivot may create new opportunities for industrial properties serving as warehousing and distribution points for goods from Europe, Asia, or other non-U.S. trading partners.
For industrial property owners, this supply chain restructuring presents both challenges and opportunities. Properties strategically positioned to serve diversified supply chains—particularly those with good access to ports, airports, and rail facilities handling non-U.S. imports—may gain a competitive advantage. Landlords with the capability to help tenants reconfigure warehouse spaces to accommodate changing inventory patterns could strengthen tenant relationships and potentially command rent premiums.
Data-Driven Decision-Making and Financial Strategy Alignment
Business consultants are advising companies to employ data-driven approaches when navigating tariff impacts. As noted in PWC’s analysis, businesses should conduct thorough tariff impact assessments and modelling to make strategic decisions, including those related to real estate5. This analytical approach enables better alignment of financial and business strategies with real estate decisions, potentially reducing risks and avoiding unexpected costs.
For commercial property owners, this trend toward more sophisticated analysis of tariff impacts presents an opportunity to differentiate their offerings through data-enhanced property management services. Landlords who can provide tenants with insights on how property features might help mitigate tariff-related challenges—such as energy efficiency reducing operational costs or flexible space configurations accommodating changing business needs—may gain a competitive advantage in attracting and retaining tenants.
Local Market Focus and “Buy Canadian” Opportunities
The tariff situation has accelerated interest in local sourcing and Canadian-made products, creating potential opportunities for certain segments of the commercial real estate market. As some Toronto businesses report sales increases due to consumers preferring local options during this period of trade uncertainty, retail properties housing predominantly Canadian retailers may find themselves advantaged4.
This trend could reshape tenant mixes in retail properties, with landlords potentially giving preference to Canadian retailers or those with minimal U.S. supply chain exposure. Shopping centers might reconsider their merchandising strategies to emphasize local offerings, potentially creating leasing opportunities for Canadian manufacturers opening direct-to-consumer outlets or local service providers who are largely insulated from tariff impacts.
Operational Optimization and Cost Management
Businesses occupying commercial spaces are increasingly focused on operational optimization to offset tariff-related cost increases. This may involve rethinking space utilization, implementing energy efficiency measures, or exploring shared service models—all of which have implications for how commercial real estate is used and valued.
Property owners can support these optimization efforts through strategic building improvements that reduce operational costs for tenants. Energy efficiency upgrades, shared amenity spaces that reduce individual tenant footprints, and flexible lease structures that accommodate changing business needs represent potential approaches to helping tenants manage costs in the tariff-affected economy.
Uncertainty and Market Dynamics: Short and Long-Term Perspectives
The tariff situation introduces significant uncertainty into Toronto’s commercial real estate market, creating both immediate challenges and potential long-term structural changes.
Short-Term Market Reactions and Sentiment Shifts
In the immediate term, uncertainty is manifesting as hesitation among both tenants and investors. The 27.4% year-over-year decline in Toronto’s overall real estate sales for February 2025 reflects this cautiousness, with market participants adopting wait-and-see postures until the tariff situation clarifies1. This slowdown extends beyond residential to commercial transactions, potentially reducing property liquidity and complicating valuation processes.
Market sentiment has shifted notably, with confidence—a critical factor in real estate decision-making—significantly eroded by unpredictable trade policies. As industry experts note, this confidence factor particularly impacts office leasing demand, as businesses hesitate to commit to space without clearer economic visibility3. The uncertainty also affects investment underwriting as risk premiums increase to account for unpredictable policy shifts.
The current situation has accelerated pre-existing trends in certain market segments. Toronto’s commercial real estate market was already navigating challenges before the tariffs, including changing work patterns affecting office demand and e-commerce pressures on traditional retail. The tariff situation has not created entirely new dynamics but rather intensified and complicated existing ones, potentially accelerating evolutionary changes that were already underway.
Long-Term Structural Implications for Toronto’s Commercial Market
Looking beyond immediate reactions, the tariff situation could drive fundamental structural changes in Toronto’s commercial real estate landscape if the trade tensions persist. Supply chains may permanently reconfigure, potentially creating new patterns of demand for industrial and logistics properties. Retail tenant mixes could evolve to emphasize local production and reduce dependency on U.S. imports. Office users might accelerate space rationalization efforts to offset rising operational costs.
The situation could also influence the geographic distribution of commercial activity within the Greater Toronto Area. As businesses seek to manage costs in response to tariffs, some may consider relocating from premium downtown locations to less expensive suburban submarkets. This potential shift could reshape demand patterns across the region, creating opportunities in previously secondary locations while challenging traditional premium districts.
For development pipelines, the uncertainty and increased construction costs may lead to project delays or cancellations, potentially reducing future supply across all commercial property types3. This constrained pipeline could eventually create supply-demand imbalances once the market adjusts to the new tariff reality, potentially leading to rent growth in certain sectors despite the current challenges.
The most profound long-term impact may be the acceleration of Canadian business independence from U.S. supply chains. If businesses permanently diversify their sourcing to reduce dependency on tariff-affected U.S. products, this could create entirely new patterns of commercial activity requiring different real estate solutions5. Properties able to accommodate these evolving business models—whether through flexible design, strategic location, or adaptable infrastructure—may gain long-term competitive advantage.
Conclusion
Toronto’s commercial real estate market stands at a pivotal moment as it navigates the complex implications of Trump’s 2025 tariffs. The 25% tariffs on Canadian exports and Canada’s retaliatory measures have introduced significant uncertainty into market dynamics, creating challenges across office, retail, and industrial property sectors. The impact extends beyond immediate cost increases to influence fundamental business decisions regarding space utilization, location preferences, and operational strategies.
While the tariff situation undoubtedly presents challenges, it also reveals potential opportunities for adaptive stakeholders. Properties housing Canadian-focused businesses may find unexpected stability advantages. Industrial spaces serving diversified supply chains could gain a competitive edge. Retail properties emphasizing local offerings might discover renewed consumer interest. These silver linings suggest that while Toronto’s commercial real estate landscape is certainly transforming, this transformation will create winners alongside the more obvious challenges.
The path forward remains uncertain, with much depending on whether the current trade tensions represent a temporary disruption or a more permanent reconfiguration of U.S.-Canada economic relations. What seems clear, however, is that Toronto’s commercial real estate stakeholders cannot simply wait for a return to previous conditions. The most successful participants in this market will be those who proactively adapt to the changing landscape, implementing strategic approaches that not only mitigate tariff-related challenges but potentially leverage new opportunities emerging from this period of economic transformation.
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[…] already contributed to a 27.4% year-over-year plunge in overall real estate sales for February 20256. These combined pressures create a particularly challenging environment for urban commercial […]