Article
Toronto Leads Office Market Recovery With Strong Leasing in Q3
October 2, 2025 3 Minute Read
It’s been a rough few years for the Toronto office market.
But strong leasing activity in Canada’s biggest city in the third quarter suggests that businesses are recommitting to traditional ways of work and that early signs of recovery are maturing into sustained and broad-based office demand.
Toronto’s downtown office vacancy dropped 150 basis points (bps) to 17.0% in Q3, driven by strong leasing in existing office space, according to CBRE’s Q3 2025 Canada Office Figures.
Five Canadian cities reported decreases in downtown vacancy in the third quarter. Two of them, Calgary and Ottawa, saw improvements thanks to office-to-residential conversions.
Flight to Quality Intensifies
Flight-to-quality reached a new fever pitch in the third quarter as downtown Class A vacancy declined 90 bps to 16.1% nationally. This is the largest quarterly decrease within this segment on record since 2008.
Lower quality Class B/C assets continue to experience rising vacancy.
“The Toronto office market has kicked into a new gear and we would expect other Canadian cities to start trending in this direction,” says CBRE Canada Chairman Paul Morassutti.
“That said, these are unprecedented times. The coming quarters will reveal more about the depth and breadth of the office recovery and we’ll know for sure whether it’s a consolidation of economic activity in core sectors that primarily benefit Toronto, or a rising tide that benefits multiple sectors and cities.”
Office Development Drops
The amount of office space under construction nationwide fell to 2.6 million sq. ft. in Q3.
With no new projects breaking ground, the office construction pipeline is at a 20-year low. Toronto continues to account for the bulk of active development, or 79.0% of all space under construction in Canada. Outside of Toronto and Vancouver, all remaining markets have either one or no active office projects underway.
While over 60% of all office construction has been pre-leased there exists much variation among regional commitment levels. Markets like Toronto, Vancouver and Waterloo Region boast pre-leasing rates exceeding 50%, while neither Ottawa, Halifax nor Calgary have recorded any pre-leasing.
New Supply Coming in Q4
Although office deliveries have been quiet throughout 2025, nearly 1.7 million sq. ft. of new supply is expected across Canada in Q4. This would bump annual new supply to 2.2 million sq. ft. for 2025, the lowest annual total in Canada since 2019.
Most of the new supply anticipated for Q4 is attributed to CIBC Square Phase II in downtown Toronto. The project totals 1.4 million sq. ft. and is nearly fully pre-leased.
Q3 2025 saw a big uptick in conversion activity with 10 projects (five of them in Calgary) amounting to over 991,000 sq. ft. of space removed from inventory.
The cumulative total of former office space removed from inventory since 2021 for conversion has now reached 6.8 million sq. ft. An additional 2.6 million sq. ft. has been demolished over this same period. Together these have helped reduce inventory by 2.0%.
Industrial Availability Continues to Rise
National net absorption of industrial space was negative for the second quarter in a row, totaling -676,000 sq. ft., according to CBRE’s Q3 2025 Canada Industrial Figures.
While overall net leasing activity was modestly negative, strong positive momentum was seen in Toronto and Edmonton in the quarter. This was offset by the negative net absorption recorded in Montreal and Waterloo Region.
The pace of industrial construction starts moderated in Q3, with 4.4 million sq. ft. of new projects launching nationwide.
Spec Starts are Shrinking
In recent quarters the share of speculative project starts has been shrinking and design build construction now makes up most of the quarterly starts, accounting for 54.6% of the Q3 2025 total. Big box facilities in Toronto represented 2.1 million sq. ft., or 47.9% of all national starts.
The 25.9 million sq. ft. of industrial space currently under construction across Canada will result in more new supply for the market to absorb in future quarters.
Construction activity in Toronto – 9.9 million sq. ft. of space actively under development – continues to dwarf all other markets. Notably, 6.6 million sq. ft. of this space remained available as of Q3.
Pre-leasing on the national industrial construction pipeline has been steadily improving over the last four quarters and in the third quarter rose to its highest level in three years, 51.3%.
Recent Insights
-
CBRE’s Arlin Markowitz was in Las Vegas for the buzzy annual retail conference, where retail industry leaders and world-leading brands gather to network, talk trends and make deals.
-
CBRE’s Philippe Lambert and his team have completed the sale of 1688 route de l’aéroport, a 69,000 sq. ft. mixed-use building on 300,000 sq. ft. of land next to Quebec City airport.
-
CBRE Montreal’s National Investment Team has brokered the sale of Mondev’s 230-unit Laurence apartment project in Old Montreal.
Stay In The Know
Subscribe today and join hundreds of professionals who get the latest blogs delivered straight to their inbox.