Toronto’s restaurant real estate market is experiencing a period of significant transformation, presenting both challenges and opportunities for investors, operators, and property owners. As Hospitality Business Brokers specializing in this dynamic sector, we’ve observed several key trends that are reshaping the landscape in 2025. Understanding these shifts is crucial for anyone looking to navigate the commercial restaurant property market successfully in Toronto and beyond.
The Current State of Toronto’s Restaurant Real Estate Market
The Greater Toronto Area commercial real estate market has entered a period of adjustment, with investment activity experiencing a notable contraction while simultaneously revealing new opportunities for strategic positioning. The first half of 2025 recorded approximately $7.2 billion in commercial real estate transactions, representing a 22% decrease compared to the same period in the previous year.
Despite this broader market contraction, the restaurant real estate sector has demonstrated remarkable resilience. The retail sector, which encompasses restaurant properties, remained relatively stable with $1.3 billion in transaction volume, representing a 5% year-over-year increase. This positive performance stands in stark contrast to other commercial real estate sectors, with the office sector experiencing a 39% year-over-year decrease.
The stability in restaurant-related retail properties reflects the essential nature of food service businesses and their continued importance to Canadian consumers. Even during economic uncertainty, people continue to dine out, though their patterns and preferences may shift.
Key Investment Trends in Restaurant Properties
Investment patterns have revealed a clear preference for food-anchored retail properties, which have emerged as the most sought-after commercial real estate asset type across Canada. This preference reflects investor recognition of the stability and resilience inherent in properties anchored by essential services like grocery stores and restaurants.
According to Altus Group’s Investment Trends Survey, food-anchored retail strips topped the list of preferred property types in the first quarter of 2025, continuing a trend established in 2024. The enduring appeal of these properties stems from their ability to generate consistent foot traffic and maintain stable tenant relationships even during economic uncertainty.
The geographic distribution of investment activity has also shifted significantly. While the Greater Toronto Area has recovered to third position in investor market preferences (up from fifth place in the previous quarter), investors are increasingly diversifying their portfolios across different geographic markets, with Vancouver, Calgary, and Montreal emerging as preferred destinations for food-anchored retail investments.
Valuation Trends and Cap Rates
The valuation landscape for Toronto restaurant real estate has undergone significant shifts that reflect both market recovery and evolving investor preferences. According to Altus Group’s Canadian Commercial Real Estate Valuation Analysis, retail property values experienced positive momentum with a 0.74% increase compared to the fourth quarter of 2024 and a substantial 4.1% increase compared to the first quarter of 2024.
The compression of capitalization rates has emerged as a key indicator of increased investor confidence in restaurant-related properties. Cap rates have compressed by approximately 0.5% to 1% in major Ontario markets over the past six months, reflecting stronger investor demand and confidence in the stability and growth potential of restaurant-tenanted properties.
Food-anchored retail strips have experienced the most significant valuation improvements, driven by their perceived stability and resilience during economic uncertainty. These properties benefit from anchor tenants such as grocery stores that generate consistent foot traffic, creating spillover benefits for adjacent restaurant tenants.
Geographic Shifts in Toronto’s Restaurant Scene
Toronto’s restaurant real estate market is experiencing a fundamental geographic redistribution that reflects changing consumer preferences, operational considerations, and economic realities. The traditional hierarchy of prime restaurant locations is being challenged by emerging neighbourhoods and suburban markets that offer compelling value propositions for both operators and investors.
The downtown core, historically the undisputed center of Toronto’s restaurant scene, faces ongoing challenges related to hybrid work patterns and reduced office worker populations. Downtown establishments continue to experience approximately 30% lower sales compared to pre-pandemic figures, creating pressure on operators locked into leases signed before 2020.
Emerging Neighbourhood Opportunities
While King Street West, Queen Street West, and Ossington Avenue maintain their cultural significance and continue to attract premium rents, the competition for these locations has intensified. These established dining corridors benefit from strong brand recognition and tourist appeal, making them attractive to operators seeking to establish flagship locations or capitalize on Toronto’s reputation as a culinary destination.
However, the high cost of entry in these markets has prompted many operators to explore alternatives. Emerging neighbourhoods are presenting attractive opportunities for restaurant real estate investment and development. The Junction Triangle, East Danforth, and parts of Scarborough are experiencing strong residential growth with younger, food-oriented demographics.
These areas offer several advantages including relatively lower competition compared to established dining districts, improving transit connections to other parts of the city, and strong community support for independent food businesses.
At CHI Real Estate Group, we’ve successfully helped numerous restaurant clients identify these emerging hotspots before they become mainstream, allowing them to secure favourable locations at more reasonable costs.
Rental Rate Dynamics and Leasing Conditions
The rental market for Toronto restaurant real estate has experienced significant upward pressure, with rates continuing to rise across most market segments despite broader economic uncertainty. Current data indicates that retail rental rates in prime areas of Toronto range from approximately $40 to $150 CAD per square foot annually, representing substantial increases from previous periods.
Specific market examples illustrate the current rental landscape across different Toronto neighbourhoods:
- Spadina Avenue: $44.32 CAD per square foot annually
- Ossington Avenue: $88.24 CAD per square foot annually
- Danforth Avenue: $35.00 CAD per square foot annually
- Bloor Street West: $65.00 to $80.00 CAD per square foot annually
According to CBRE’s Retail Rent Survey, 40 of 120 surveyed areas experienced rent increases in the first half of the year, representing more increases than in any prior edition of their report. Only two reductions in benchmark rent prices were noted during this period, indicating broad-based upward pressure on restaurant real estate costs.
Factors Driving Rental Increases
Several factors are driving the sustained upward pressure on restaurant rental rates:
- Construction costs continue to act as a limiting factor across many markets, keeping vacancy rates low and supporting elevated rent levels
- The shortage of quality retail spaces specifically suitable for restaurant use has created competitive bidding situations that favor landlords in lease negotiations
- Inflation has created upward pressure on all operating costs for property owners, who are passing these increases through to tenants
- Landlords are coping with multiple cost pressures including higher interest rates and property tax increases
The supply-demand imbalance has become particularly acute for second-generation restaurant spaces that come with existing kitchen infrastructure and restaurant-appropriate layouts. Fixtured second-generation storefront or restaurant spaces are in high demand and experiencing the most significant rent increases. The high cost of building out new restaurant spaces from raw commercial shells has made existing restaurant-ready spaces particularly valuable.
Restaurant Industry Performance and Recovery
The Canadian restaurant industry has demonstrated remarkable resilience and recovery momentum that directly impacts real estate investment decisions and market dynamics. Canada’s foodservice industry reached nearly $120 billion in 2024, representing a 4.9% increase over 2023 figures. While this growth is notable, when adjusted for menu inflation of 4.2%, real foodservice sales grew by only 0.7%, indicating that much of the nominal growth reflects price increases rather than volume expansion.
The Consumer Dining Index has emerged as a crucial metric for understanding restaurant real estate demand. The index rose to 89.8 in May 2025, representing a significant 7.2-point year-over-year increase from May 2024’s reading of 82.6. This upward trajectory indicates not just a return to pre-pandemic dining habits but actual expansion of consumer spending on dining experiences in certain market segments.
Operational Challenges Persist
Despite positive trends in consumer behavior, significant operational challenges persist within the restaurant industry. Current data indicates that 62% of restaurants are operating at a loss or barely breaking even, representing a 9% increase from July 2023 when the figure stood at 53%. This compares unfavorably to pre-pandemic levels when only 10% of restaurants faced such financial difficulties.
Bankruptcy rates within the restaurant industry have reached concerning levels that influence real estate market dynamics. The first three months of 2024 saw 357 restaurant businesses cease operations, significantly higher than the 184 restaurants that declared bankruptcy during the same period in 2023. The annual 2023 bankruptcy count reached 882 nationally, more than double the 2020 figure.
These statistics underscore the ongoing financial pressure facing restaurant operators and the importance of careful tenant selection for property investors. At CHI Real Estate Group, we work closely with both landlords and restaurant operators to ensure viable matches that can withstand current market pressures.
Financing and Investment Considerations
The financing landscape for Toronto restaurant real estate has undergone substantial changes that reflect both increased lender scrutiny and evolving market conditions. Securing financing for restaurant real estate purchases now requires more substantial down payments and collateral compared to pre-pandemic periods. Lenders typically demand equity contributions ranging from 30% to 40% of the purchase price, representing a significant increase from historical norms when lower down payments were commonly accepted.
Lending criteria have become more stringent across all aspects of restaurant real estate transactions. Lenders now require demonstrated industry experience from operators, comprehensive business plans with realistic financial projections, and often demand secondary collateral beyond the property itself. This increased scrutiny reflects lenders’ recognition of the restaurant industry’s volatility and the need for additional security measures to protect their investments.
Mixed-Use Development and Restaurant Success
Mixed-use developments have emerged as particularly attractive opportunities for restaurant real estate investors. These properties combine residential, retail, and office components to create integrated communities with built-in customer bases. The combination of different uses creates natural traffic flow throughout different parts of the day, helping restaurants maintain consistent customer volumes.
Modern mixed-use developments also typically offer superior infrastructure, energy efficiency, and designs that accommodate contemporary dining trends. The success of restaurants in Toronto’s mixed-use developments has been well-documented, with many operators finding that these locations provide more stable year-round traffic patterns compared to street-front locations.
Transit-oriented development has become a key factor in restaurant real estate site selection. Properties near existing or planned transit hubs command premium valuations due to their built-in accessibility and foot traffic potential. Toronto’s ongoing transit expansion projects are creating new restaurant development corridors along transit lines, offering early movers the opportunity to establish positions in areas poised for significant growth.
Future Outlook for Toronto’s Restaurant Real Estate
The Toronto restaurant real estate market is positioned for continued evolution driven by technological advancement, changing consumer preferences, and ongoing economic adaptation. Industry analysts project that the current market adjustment period will extend through 2025, with stabilization and renewed growth expected in 2026 as economic uncertainties resolve and market fundamentals strengthen.
Demographic trends strongly support long-term growth in Toronto’s restaurant real estate market. The Greater Toronto Area continues to experience population growth through immigration and interprovincial migration, creating expanding customer bases for restaurant operations. Younger demographics, particularly Millennials and Generation Z consumers, demonstrate strong preferences for dining experiences over material purchases, supporting sustained demand for restaurant services and the real estate that houses them.
Technology and Innovation
Technology integration is reshaping restaurant real estate requirements and creating new opportunities for forward-thinking investors. Properties that accommodate delivery and takeout operations, including dedicated pickup areas and kitchen-focused layouts, are commanding premium valuations.
Climate change considerations are beginning to influence restaurant real estate development and investment decisions. Properties with energy-efficient systems, sustainable design elements, and climate adaptation features may command premium valuations as both operators and consumers increasingly prioritize environmental responsibility. Outdoor dining capabilities that function across Toronto’s variable climate conditions will likely become increasingly valuable as consumer preferences continue emphasizing experiential dining.
Strategies for Success in Today’s Market
For those looking to navigate Toronto’s restaurant real estate market successfully, we recommend several key strategies:
- Consider emerging neighbourhoods: Look beyond traditional dining districts to areas with growing residential populations and improving transit connections
- Evaluate mixed-use developments: Properties that combine residential, office, and retail components often provide more stable customer bases
- Prioritize flexibility: Spaces that can adapt to changing operational models (dine-in, takeout, delivery) offer greater long-term viability
- Look for existing infrastructure: Second-generation restaurant spaces with existing kitchen infrastructure can significantly reduce setup costs
- Explore creative financing: Consider alternative structures like vendor financing, joint ventures, or sale-leasebacks to overcome traditional financing challenges
For restaurant operators seeking to buy a restaurant in Toronto, it’s essential to thoroughly evaluate both the business fundamentals and the underlying real estate. Location remains critical, but today’s successful restaurant real estate strategy must also consider changing work patterns, delivery integration, and evolving consumer preferences.
Conclusion
Toronto’s restaurant real estate market in 2025 presents a complex landscape of challenges and opportunities that reflect broader economic uncertainties alongside fundamental industry strengths. The market’s geographic redistribution represents perhaps the most significant structural change affecting investment strategy and operational decisions.
While established dining districts like King Street West and Ossington Avenue continue to command premium rents, emerging neighbourhoods such as Junction Triangle and East Danforth offer compelling value propositions with lower entry costs and growing residential populations. The success of suburban markets demonstrates that restaurant real estate opportunities extend well beyond Toronto’s traditional core.
Food-anchored retail strips have emerged as the clear preference among commercial real estate investors, topping national preference rankings and demonstrating the market’s flight to quality and stability. The cap rate compression of 0.5% to 1% experienced by these properties over the past six months translates directly into improved valuations for existing owners.
Looking forward, Toronto’s restaurant real estate market appears positioned for continued adaptation and selective growth. The city’s demographic trends, including ongoing population growth and younger consumers’ preferences for experiential dining, support long-term demand fundamentals. Success in this market requires nuanced understanding of neighbourhood dynamics, consumer preferences, and operational requirements.
At CHI Real Estate Group, we specialize in helping clients navigate these complexities, whether you’re looking to buy or sell a restaurant property in Toronto. Our deep industry knowledge and extensive network allow us to identify opportunities others might miss and to connect buyers and sellers in this dynamic market.
Frequently Asked Questions
What makes food-anchored retail strips a top investment in Toronto’s restaurant real estate market?
Food-anchored retail strips are highly sought after because they offer stability and resilience, especially in uncertain economic times. Investors value these properties for their ability to generate steady foot traffic, maintain stable tenant relationships, and withstand market fluctuations. Anchors like grocery stores bring consistent customers, which benefits adjacent restaurants and supports reliable rental income, making these assets a preferred choice in 2025.
How are rental rates and leasing conditions changing for Toronto restaurant properties?
Rental rates for restaurant spaces in Toronto have risen significantly, with prime neighborhoods seeing rents from $40 to $150 CAD per square foot annually. This upward pressure is driven by low vacancy rates, high construction costs, and a shortage of restaurant-suitable spaces. Existing, fixtured restaurant spaces are especially in demand, leading to competitive bidding situations and favoring landlords during lease negotiations.
Why are emerging neighbourhoods becoming attractive for new restaurant openings?
Emerging neighbourhoods like Junction Triangle, East Danforth, and parts of Scarborough are drawing attention due to growing residential populations and younger, food-oriented demographics. These areas offer lower competition, improving transit connections, and strong community support for independent restaurants. Operators can secure favourable locations at more reasonable costs, making these neighbourhoods valuable for expansion or new ventures.
What financing challenges are restaurant property buyers facing in 2025?
Securing financing for restaurant real estate has become tougher, with lenders requiring larger down payments (30-40%), more collateral, and proof of industry experience. Business plans must be detailed and realistic, reflecting the sector’s volatility. To overcome strict lending standards, buyers are turning to creative solutions like vendor take-back mortgages, sale-leasebacks, and joint ventures, providing flexibility in a tighter market.
How do mixed-use developments benefit restaurant operators and investors?
Mixed-use developments, which combine residential, retail, and office spaces, create built-in customer bases and steady foot traffic throughout the day. Restaurants in these settings often enjoy more stable year-round business compared to street-front locations. These properties also offer modern infrastructure and energy efficiency, aligning with contemporary dining trends and providing long-term growth opportunities.
