Canadian office vacancy has declined for the fourth straight quarter, while national industrial vacancy continues to tighten, says a new report from Colliers.

National office vacancy fell to 13.4% in the second quarter of 2026, while industrial vacancy declined to 3.3%, extending improving conditions across Canada’s commercial real estate market, according to Colliers’ Q2 2026 National Market Snapshot.

While office vacancy has now declined for four consecutive quarters, while industrial vacancy has tightened for a second straight quarter, supported by occupier demand, stronger absorption and a shrinking development pipeline. National office net absorption totalled 609,912 square feet during the quarter, while industrial net absorption exceeded 7.1 million square feet.

Office construction remained subdued, with only 37,500 square feet of new office supply delivered nationally during the quarter, the lowest level in 15 years.

Toronto led the country’s office market with more than 523,000 square feet of positive absorption, reducing overall vacancy to 10.6%. Vacancy in the city’s downtown and midtown core dropped below 10% for the first time since the third quarter of 2022. Halifax posted the lowest office vacancy rate among major markets at 8.3%, while Ottawa was the only major market to record a quarterly increase, rising to 13.2% because of public-sector space reductions.

“We’ve heard the narrative that AI and hybrid work models are coming for office jobs, but the data tells a completely different story,” said Adam Jacobs, Colliers’ head of Canadian research, in a news release. “What we are seeing in Toronto is a highly resilient core. Major occupiers are recognizing that physical hubs are essential for collaboration, and they are voting with their feet by taking up more space. Transit-adjacent, high-quality spaces are absorbing rapidly, proving that the office tower is far from obsolete.”

But Jacobs told Connect, while Canada’s overall office vacancy rate is in double digits, but available prime spaces are “almost non-existent.”

“So, if you had a tenant that just had to have the premium stuff, you can’t get it on the market,” he said, indicating that the leases would have to be off-market transactions.

Usually, increased leasing activity leads to a new major office development project, said Jacobs. But he does not expect one for some time due to pressures tied to the Middle East conflict, strained Canada-U.S. trade relations, elevated interest rates and oil prices, and ongoing inflation trends.

“I would put my money on no more development for the rest of the decade, basically, for office,” he said.

Meanwhile, the outlook for Canada’s industrial market has brightened after it also strengthened during the second quarter. National vacancy fell to 3.3% as asking rents stabilized following several quarters of declines. Toronto recorded the country’s lowest industrial vacancy rate at 2.2%, while Calgary posted more than 1.5 million square feet of positive absorption and Montreal exceeded 660,000 square feet.

“The industrial market continues to tighten across much of the country, particularly for larger occupiers seeking significant blocks of space,” said Susan Thompson, director of Canadian research at Colliers. “In markets such as Vancouver, Calgary and Toronto, constrained supply and limited new construction activity are reinforcing competition for quality industrial space.”

Jacobs told Connect that the national industrial leasing market is “coming back” after remaining flat for a couple of years.

But as with the office sector, major new industrial development projects are unlikely for some time to come.

“[Industrial] investment is much more impacted, I think, by the uncertainty, by the high interest rates, by the risk of inflation,” he said. “The case for investment is just really hard whereas, I think, leasing has its own momentum. Eventually, every tenant’s lease expires and they have to do something. They have to relocate or downsize or go fully remote or renew. There’s always a lease turning over every day.

“So, I think there was a lot of stalling on that side about decision-making, and now people are making decisions. Investment [in a new project] depends so much on what price you get in at and what kind of debt you can lock in. It’s very hard to make that happen right now.”

Accordingly, Colliers said the national development pipeline continues to contract as high vacancy, elevated construction costs and lender caution, particularly toward office projects, limit new development.

The firm said current market gains are being driven largely by existing inventory.

The new Colliers report comes after the company found that Canada’s most talented financial services employees are creating more demand for office space in the country’s major markets.

The report found that that top financial services workers in Toronto, Montreal, Calgary and Vancouver rank among the best in the world. As a result, leading firms are leasing more space in the cities to employ top talent, Jacobs told Connect previously.

Pictured: Office towers in Toronto’s financial district.