Office

Trends to Watch

• Office markets pivot toward sustained growth and demand acceleration

  Following two years of positive net absorption and national vacancy having peaked, the office market has stabilized and is transitioning to a period of sustained growth. Driven by expanding return-to-office mandates and high peak-day usage, national absorption is forecast to exceed double the historic average. However, this recovery will remain uneven across different building classes and Canadian markets.

• Quality gap and lack of new supply to drive urgency for premium space

  No meaningful new construction is expected to deliver between early 2026 and 2030. As existing trophy buildings fill, the scarcity of top-tier space that enables tenants to “earn the commute” will create a high-stakes environment for occupiers. Firms looking for premium, amenitized space will face increasing competition and diminishing options.

• Severe supply constraints to have greatest influence on market conditions

  Market conditions in 2026 will be increasingly driven by supply dynamics rather than just demand alone. With demolitions and conversions projected to outpace new deliveries fivefold through 2030, the market is undergoing a structural right-sizing. This removal of obsolete stock, coupled with a lack of new supply, will tighten the overall market and accelerate price tension for existing high-quality assets.

Office market transitioning from stabilization to sustained growth

Following two years of positive net absorption and national vacancy having peaked, the office market has stabilized and, in 2026, will transition to its next period: sustained growth. This shift is supported by an acceleration of the return-to-office trend as employer mandates increase. In gateway markets, many offices are already full on peak days, and usage is expected to rise further according to 43% of respondents in our 2025 Americas Office Occupier Sentiment Survey.

Elsewhere, inconsistent attendance will continue to challenge corporate culture, and a lack of office vibrancy during non-peak days will likely remain a persistent issue. However, the expansion of leasing velocity seen in Toronto over late 2025 should begin to ripple out to other markets, albeit slowly and unevenly. This activity will be primarily driven by the government, tech, and financial services industries.

Key markets poised for activity include Vancouver, Suburban Calgary, Kitchener-Waterloo, and Downtown Montreal. Meanwhile, Downtown Calgary, Edmonton, Ottawa, and Atlantic Canada are expected to see more modest levels of occupier growth. National net absorption is forecast to reach 5.1 million sq. ft. in 2026, over twice the 20-year annual average of 2.1 million sq. ft. Recovery remains uneven, with over half of that absorption forecast to occur in Downtown Toronto, despite it only accounting for 19.5% of national inventory.

The vacancy gap between the currently tighter suburbs and downtown centres will narrow as occupiers prioritize buildings offering shorter commutes and attractive amenities. Occupiers now fully recognize the need to "earn the commute" of their employees. Despite near-historic levels of vacant space, good-quality, well-located options are becoming increasingly scarce and expensive. This scarcity will only exacerbate, suggesting that occupiers looking to move or expand should act now.

Urgency is currently high among large occupiers, a sentiment expected to expand to mid-sized firms throughout the year. While trophy buildings will see significant lease-up, a full market recovery to pre-pandemic vacancy levels is forecast to take until 2030. This will not be the same market as before, but rather a new, more purposeful, and better-activated one. Commodity buildings are becoming increasingly uncompetitive, with their fate more intertwined with that of the residential market than ever before.

Market conditions will be increasingly driven by supply dynamics. After Q1 2026, a lack of meaningful new construction will persist until at least 2030. Over this period, it’s expected that as much as five times more office space will be demolished or converted than delivered. Once downtown trophy buildings fill, occupiers will prioritize high-quality buildings slightly further out rather than Class B buildings in prime submarkets.

Improved capital markets liquidity may allow for a rotation toward proactive landlords targeting well-located but high-vacancy vintage Class-A buildings. These assets offer nimbler, operationally-focused firms the opportunity to reposition and attract tenants to previously overlooked buildings with history and character. Conversely, "waiting it out" is no longer as sensible a strategy for Class B assets. Debt costs are not expected to decrease much more and with increased clarity on the timeline for demand to trickle to Class B, these owners must pivot. Competing on price with five-year lease deals may prove the best strategy for cost-conscious tenant demand.