Canada’s beleagured office market ended 2025 with positive net absorption for the second consecutive year, signalling continued improvement in leasing activity nationwide, says CBRE.

Once the darling of Canadian commercial real estate, the office market has suffered due to the effects of the COVID-19 pandemic and economic conditions that greatly reduced occupancy after an abundance of new supply had been placed in the development pipeline in such markets as Toronto, Calgary and Vancouver.

Annual net absorption totalled 2.2 million square feet, supported by strong performance in Toronto proper, according to CBRE’s fourth-quarter 2025 Canadian office report. The city recorded 2.7 msf of net absorption, largely driven by downtown transactions exceeding 50,000 sf, which helped lift the national total into positive territory.

“It is encouraging to see a second year of strong office leasing activity even though the office market recovery remains somewhat uneven,” said Marc Meehan, CBRE’s head of Canadian research.

The growing return-to-office movement has been credited with boosting office leasing activity, particularly in Toronto’s Financial District where the country’s leading banks continued to hire more employees, and create more space demand, in the aftermath of the COVID-19 pandemic, when many workers toiled from home.

“We have worked through the bulk of the office decisions that had been delayed by the pandemic and increasingly office leasing activity is reflective of economic growth and talent availability, with Toronto benefitting most from the corporate commitments to office space at this stage of the recovery,” said Meehan.

Employers are now playing catch-up when it comes to finding space for new hires in Toronto’s core, Meehan told The Toronto Star.

“What we’ve seen in the back half of 2025 is a resurgence of demand by occupiers or tenants for office space in downtown Toronto,” he told his interviewer from the Star.

As Mark Fieder, head of Avison Young’s Canadian business previously told Connect, employers are seeking to provide more attractive workspaces for their employees and prevent them from having to make undesirable long commutes to work. According to Fieder, employers are striving to reduce the commute in order to attract and retain employees who have become comfortable working at home.

Meehan told the Star that importance of office buildings’ quality and location in Toronto has become more important in the wake of the pandemic.

“If you’re going to ask your employees to return to the office then you don’t want to be asking them to have really long commutes, or to bring them back into buildings that are really not reflective of their corporate identity,” he told his interviewer.

“Or not somewhere where they’re going to be as effective and happy and engaged.” 

Fieder and Andrew Petrozzi, Newmark’s head of Canadian research, have predicted that the RTO movement could help spark new trophy-class office projects in Toronto and Vancouver.

Also, more office-sale transactions are expected in 2026 as the sector continues to recover.

Class A office buildings continued to outperform other market segments, with vacancy declining in seven of 10 Canadian markets in the fourth quarter, said CBRE. Toronto led with a 160-basis-point decline, followed by Montreal at 90 basis points. National downtown class A vacancy fell to 15.4%, its lowest level in three years. Trophy assets also posted improving fundamentals, with vacancy declining for a fourth consecutive quarter.

Sublease availability, often viewed as an indicator of shifting business plans or financial pressure, fell by 1 msf in the fourth quarter, marking the 10th straight quarter of decline. A total of 3.2 msf of sublet space was removed from the market in 2025, the highest annual reduction since 2005. Only 11.4 msf of sublet space remains available, comparable to 2017 levels, when office-market conditions were considered strong.

Reduced construction activity continued to support market stability. Only 2.8 million msf of office space is currently under construction, 69.4% of which is pre-leased. CIBC Square II in Toronto remains the only significant project in development and is fully preleased, said CBRE.

Office-to-alternative-use conversions also accelerated. Eight new conversion projects in the fourth quarter removed more than 1 msf of office space from inventory as landlords repositioned older assets. Calgary leads major Canadian markets in total converted space and accounts for nearly half of all office inventory removed since 2021.

Six markets showed signs of stabilization rather than renewed momentum. Vancouver, Edmonton, Winnipeg, London and Waterloo each recorded less than 100,000 sf of net absorption in 2025, either positive or negative. Calgary and Ottawa experienced the greatest softening, although Calgary’s vacancy rate improved year over year due to continued office-to-residential conversions.

Photo: CBRE