Toronto’s office market is expected to see vacancy rates peak in early 2025, with a gradual recovery anticipated by 2026, according to a CBRE report.

The city’s office sector, which has grappled with record-high vacancies since the pandemic, is now at a turning point, according to the commercial real estate services firm. CBRE predicts a marked improvement in leasing activity and sentiment, driven by a renewed focus on growth from occupiers and a slowdown in new office development.

Toronto’s vacancy rate is expected to hit a high of 19% by the first quarter of 2025, marking the culmination of a five-year rise that began in 2020. This trajectory mirrors historical trends from the 1990s recession when a similar combination of new supply and economic headwinds pushed vacancy rates to unprecedented levels.

CBRE notes, however, that this peak signals the beginning of recovery. Positive absorption trends, improved office utilization, and a reduction in sublease availability point to growing stability in the market. In addition, 45% of Canadian office occupiers surveyed anticipate expanding their portfolios over the next three years, a figure higher than the North American average.

Toronto’s recovery will be bolstered by a significant drop in new office construction. The development pipeline, which had been a source of supply-side pressure, is at a 20-year low. This pause in development activity will allow existing vacancies to be absorbed while mitigating risks of further oversupply, according to CBRE.

“While office markets have faced sustained challenges, Toronto is entering a more optimistic phase,” CBRE reports. “Occupiers are showing increased confidence, and the market fundamentals are aligning for a recovery starting in 2026.”

Tenant preferences continue to evolve, with a notable trend toward what CBRE calls the “flight-to-experience.” Occupiers are prioritizing modern, amenity-rich, and sustainable spaces to attract and retain talent. High-quality downtown properties are expected to outperform the broader market, as businesses focus on employee-centric workspaces that provide unique experiences and drive office attendance in the hybrid-work era.

While lower-quality class B and C office buildings will face prolonged headwinds, CBRE suggests that capital improvements and repositioning efforts could help these assets remain competitive.
Overall, Toronto’s office sector is poised for gradual stabilization. While challenges persist, particularly in older office stock, CBRE projects a healthier leasing environment by 2026 as occupiers embrace growth strategies and supply constraints ease the market’s imbalance.

As vacancy rates peak, the turning tide signals renewed opportunities for landlords and occupiers to redefine Toronto’s office landscape for the next phase of its evolution, according to CBRE.

Photo: CBRE