Article
Trump Tariffs Haven’t Hurt Canadian Commercial Real Estate – Yet
April 2, 2025 4 Minute Read
All eyes are on the Canadian economy for signs that the threatened Trump tariffs could be starting to affect business decisions. Based on first quarter data, however, there has yet to be an impact on the demand for office space.
The first quarter of 2025 was a good one for Toronto’s office market, with downtown vacancy declining by 50 basis points to 18.5%. This marked the first substantial vacancy rate improvement in Canada’s largest city since Q1 2020, thanks to healthy business activity at the start of the year, according to CBRE’s Q1 2025 Canada Office Figures.
Vancouver was the only other Canadian city to post significant positive net absorption of office space in the first quarter, driven by activity in trophy buildings, dropping its downtown vacancy to 10.7%. Winnipeg saw a decrease in its downtown vacancy in Q1, while Calgary and Halifax saw the greatest suburban improvements. The national overall office vacancy rate decreased 10 bps to 18.7%.
Positive momentum from 2024 has not grown or spread to more cities. Pre-leasing in buildings under construction is stuck at around 50% nationally despite a general flight to quality. The streak of positive net absorption of office space ended in Calgary and Edmonton, with both markets posting negative net absorption for the first time in seven and six quarters, respectively.
Merger and acquisition activity is resulting in consolidated office footprints in Calgary, whose downtown was impacted by the exit of Chevron. Softer demand in the first quarter was also noted in Montreal and Ottawa.
“The office market was poised for a rebound and while there are pockets of positivity, the office market, like much of the economy, is in wait and see mode,” says CBRE Canada Chairman Paul Morassutti. “It’s unclear how much renewed momentum there is and to what degree tariff-based uncertainty is affecting decision-making. We should have a better idea in the second quarter of what the tariffs really amount to and how businesses will respond.”
Industrial Availability Hits 5.0%
The impact of tariffs will be more directly felt by Canadian industrial markets. But net absorption of industrial space remained relatively solid in the first quarter and totaled 4.0 million sq. ft. nationally, according to CBRE’s Q1 2025 Canada Industrial Figures.
Despite the positive amount of net industrial leasing activity, it is down from a 10-year quarterly average of 6 million sq. ft. Many Canadian industrial markets have cited the ongoing trade conflict as a major headwind that could temper demand in the coming quarters.
The national industrial availability rate in the first quarter inched higher by 10 bps quarter-over-quarter to reach the 5.0% mark for the first time since 2016. While there were areas of stronger leasing activity, these were offset by continued softening in other markets, making for an overall muted quarter in Q1.
Calgary, which had been seeing heightened logistics and distribution demand from tenants shut out of Vancouver’s tight industrial market, is starting to see a pullback. There was over 855,000 sq. ft. returned to the market in Calgary in the first quarter amid a lack of new supply.
Industrial development activity is on track to continue falling as construction starts drop to a five-year low of 2.1 million sq. ft. Toronto is the only market to launch a meaningful amount of new industrial projects, accounting for 1.9 million sq. ft. of the starts in the first quarter.
“If there is tariff intrigue in the office market, there is existential concern in the industrial market,” says Morassutti. “The end of the auto pact and breaking the backbone of the Canadian manufacturing economy is almost too much to contemplate in terms of impacts on market fundamentals. Hopefully this doesn’t come to pass, and if it doesn’t, the industrial market is fundamentally healthy notwithstanding the rise in vacancy.”
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Toronto's office market saw a 50 bps drop in vacancy to 18.5% in Q1 2025, while national industrial availability rose to 5.0% amid tariff concerns.
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