Toronto Retail Market Report

Retailers on divergent paths as economy slows. Following last year’s solid performance, fundamentals in Toronto’s retail sector will moderate in 2023 but still remain healthy. As the Bank of Canada is expected to maintain its overnight rate at the current level, consumers will face a prolonged period of high borrowing costs amid still-elevated inflation. This will soften consumer spending and, in turn, leasing activity. A modest increase in unemployment is also expected as the metro’s economy slows, which could lead to a mild contraction in total retail sales. The discretionary segment will likely bear the brunt of moderating demand as consumers tend to cut non-essential outlays first. These operators may need to diversify their services for a better customer experience in order to retain foot traffic. Despite ongoing uncertainties, essential retail — such as grocery stores — is likely to perform better, due to the necessary nature of the products offered. As more office workers are returning to the city centre, downtown retailers will witness an uptick in foot traffic, although still muted compared to pre-pandemic times.