Canada’s commercial real estate market will gradually stabilize and grow in 2026 amid improving conditions and solid fundamentals, says a Morguard report released Thursday.

The 2026 Canadian Economic Outlook and Market Fundamentals Report, reviews 2025 market performance and outlines trends for 2026, highlighting stabilization in Canada’s multi-suite residential rental market, generally healthy industrial fundamentals and a brighter outlook for the hard-hit office sector.

“Canada’s economy shifted into a lower gear in early 2025 as U.S. tariffs and global trade tensions weighed on growth and business confidence,” said Angela Sahi, Morguard’s president and CEO. “Even in this slow-growth environment, high-quality real estate has continued to demonstrate resilience, supported by stable income performance and a steady flow of private capital into well-located, stabilized assets.”

While economic growth is expected to remain modest in the near term, Morguard projects increased investment activity in commercial real estate as more capital flows into the sector, borrowing costs ease, lender appetite improves and bid-ask spreads narrow.

“We’re beginning to see the signs of renewed momentum across Canada’s major commercial property sectors,” said Keith Reading, senior research director at Morguard. “Industrial and retail assets continue to post healthy fundamentals, and multi-suite residential demand is expected to firm as the economy stabilizes. As lending conditions improve, investors will increasingly re-engage with opportunities that offer stable and increasing income streams and long-term growth potential.”

The report notes that Canada’s multi-suite residential rental market softened in late 2024 and 2025 due to weaker demand and increased new supply, though investor confidence remained supported by the sector’s income stability and long-term outlook. Fundamentals are expected to stabilize gradually through 2026, with firmer rental demand, stabilizing vacancy, easing incentives and rents levelling off as the market moves toward balance by 2027.

In conventional commercial real estate, the office market outlook has improved as return-to-office mandates lift occupancy, particularly for high-quality, amenity-rich space. Industrial fundamentals remained healthy in 2025 despite rising availability from new supply, with quality logistics assets continuing to attract investors. Retail leasing conditions stayed tight across Canada’s strongest markets, supporting strong rents and resilient income performance.

Morguard also highlighted broader economic factors, noting that trade tensions with the U.S. weighed on growth and confidence in 2025, while modest economic growth is expected in 2026 alongside easing trade pressures. Despite the slow-growth environment, investment capital continued to flow into high-quality, stabilized retail, industrial and multi-suite residential assets, with increased activity anticipated as financing conditions improve.

Photo: Morguard