Canada’s office and industrial vacancy rates both declined in early 2026, marking the first simultaneous drop in more than two decades, says a new report from Colliers.

The Q1 2026 National Market Snapshot shows that the country’s commercial real estate sector entering a phase of recalibration and growth, said the commercial real estate advisory firm. The results point to improving fundamentals in office and industrial markets and steady performance in retail, said the company.

National office vacancy fell 1% year-over-year to 13.6%, one of the most significant improvements since the onset of COVID-19. The decline reflects a market adjustment as existing inventory is absorbed amid a near-total halt in new construction, with less than 2 million square feet currently underway across Canada.

Leasing activity continues to strengthen in downtown class A buildings, driven by tenant demand for high-quality space and the impact of return-to-office mandates. Competition for premium office space is intensifying, with major tenants renewing leases early and fewer incentives available in top-tier properties.

“The decline in vacancy we’re seeing isn’t a statistical blip; it’s the result of a structural rightsizing,” said Adam Jacobs, the company’s head of Canadian research. “With conversions removing record amounts of obsolete stock and a near-total halt in new builds, the window to secure top-tier space is closing, and we expect this scarcity to drive significant competition through the remainder of 2026.”

Canada’s office market has been gaining considerable momentum since mid-year 2025, raising questions as to when a new trophy-class downtown office tower might break ground in Toronto, Montreal or Vancouver’s cores following the prolonged halt in construction. But Jacobs does not expect a major project to launch in either of those cities for some time.

“There’s been a lot of talk about that, and I think a lot of optimism about that, but I am on the more skeptical side here,” he said.

A large new project is particularly difficult in downtown Toronto, he indicated.

“There certainly are still parcels downtown that are, one day, going to become the next new shiny office [tower],” said Jacobs, whose firm has its headquarters in downtown Toronto. “But that is dependent on a very big tenant preleasing 20 floors of space. And, it’s harder to make the argument for that in this market than almost any time.

“Now, the premium space, is not available. And, if you just want the ultra- super premium space and you’re willing to wait five years or seven years, then that’s the way to get it. But I just think it’s much harder for people to justify the big preleasing commitment.

In the industrial sector, vacancy also declined nationally for the first time since 2022, signalling a shift toward balance after years of tight conditions and elevated development. Net absorption reached 3.6 msf in the first quarter, exceeding 3 msf of new supply, with most major markets recording quarterly declines in vacancy.

Construction activity remains active, with 5.6 msf of new projects launched in Q1, largely concentrated in Toronto, Vancouver and Calgary, which accounted for 76% of new starts.

“We are seeing a notable shift in developer confidence; the recent dominance of design-build projects has pivoted back toward speculative construction,” Jacobs said. “With the total national pipeline now sitting at 24.5 million square feet, the market continues to maintain a healthy and consistent level of active development.”

Colliers said the combined trends point to a more stable and competitive commercial real estate landscape as 2026 progresses.

Photo: Colliers