Canada’s office vacancy rate is expected to return to pre-pandemic levels by 2029, as improving tenant demand and stronger leasing activity signal a gradual market recovery.

In its latest quarterly report on the Canadian office market, Colliers says the tide is shifted on the beleagured sector that has been hit hard by a multitude disruptors in recent years, including the effects of the COVID-19 pandemic, the growth of the hybrid-work movement, changing global macroeconomic and market condition, a supply-demand imbalance and various other factors.

The Colliers report states that national office vacancy peaked at 14.9% in 2025, marking the high point of hybrid work’s impact on demand. Based on economic forecasts calling for average GDP growth of about 2% annually over the next three years, vacancy is projected to decline to roughly 8% by 2029 — a level not seen since late 2019.

Tenant sentiment has shifted notably. Only 11% of occupiers now expect to reduce their space requirements, the lowest share since 2020, while 17% anticipate expanding — a significant year-over-year increase. This renewed confidence, along with new market entrants, is expected to support absorption and drive vacancy lower.

Leasing patterns are also evolving. After several years dominated by smaller, short-term deals, tenants are committing to larger spaces again, with median lease sizes approaching 3,900 square feet in 2025 — in line with pre-pandemic norms. At the same time, companies are scaling back “hot-desking” strategies, pushing average space allocation per employee back up to about 260 square feet.

Return-to-office policies continue to firm up. Employers now require staff in the office an average of 3.5 days per week, up from 3.3 days in 2022, and 68% of organizations report having finalized their workplace strategies.

The effect was particularly noticeable in Canada’s largest office market.

“In the second half of 2025, downtown Toronto saw high levels of leasing activity not seen in well over a decade,” said John Olynick, senior managing director of brokerage at Colliers.
“Return to office mandates by the Big Banks and the provincial government [were] a dominant factor, which has also carried over into Q1 2026.”

The recovery, however, will be uneven across asset classes. Higher-quality buildings with strong transit access and tailored amenities are expected to rebound first, potentially reaching pre-pandemic vacancy levels by late 2027.

“Class distinction alone doesn’t dictate the speed of recovery,” said John Duda, Colliers’ president of real estate management services. “Class distinction plus transportation accessibility plus tailored amenities all make a difference.”

Lower-quality and less accessible properties may take until 2029 to fully recover. In 2025, vacancy for top-tier AAA buildings declined faster than for lower-tier assets, reinforcing this trend.

Accessibility has emerged as a critical factor in leasing decisions, second only to rent. Colliers found that for every one-point increase in its proprietary accessibility score, buildings can capture an additional 5% of leasing demand — in some cases allowing lower-class assets with superior access to outperform higher-class competitors.

Overall, the report suggests that Canada’s office market is transitioning from a tenant-favoured environment toward a more balanced, and eventually landlord-favoured, market as demand stabilizes and confidence returns.

Photo: Colliers