Canada Office Figures Q2 2025

Executive Summary

• Recent levels of national net absorption have had a negligible impact on the overall market as vacancy has held in a tight 20 basis point (bps) range for the last year and a half, signaling a plateau.
• Trophy and best-in-class product continue to outperform the remainder of the market with back-to-back quarters of improving vacancy. Commanding the highest rental rates, it is evident that tenants are willing to pay for quality product.
• Modest demand downtown resulted in declining vacancy in six markets. Overall, levels of activity in Montreal and Edmonton were counterbalanced by large block vacancies that came to market this quarter in Calgary, Toronto and Vancouver.
• Sublet space continues to decline and is down 26.1% from the peak noted two years prior. Overall, sublet vacancy fell in six cities this quarter.
• Construction has stalled at 2.8 million sq. ft. with only 203,000 sq. ft. of new supply in Q2 2025. This quarter also marks one consecutive year of no starts and two years since any meaningful projects have commenced.

Six markets on positive ground

Four quarters of near-negligible net absorption has had a normalizing effect on the market as vacancy has held in a tight 20 bps range for the last year and a half, signaling a plateau.

The current uncertain economic environment, however, could see this plateau be more protracted than it otherwise would have been before moving into recovery.

Six cities reported positive absorption this quarter, led by Montreal and Edmonton. In a reversal from last quarter, activity in these two markets completely counteracted negative results from Q1 and on a year-to-date basis are now on positive ground.

Calgary, Toronto, and Vancouver meanwhile reported the largest losses and pushed the Canadian total into slightly negative territory. Each market had significant blocks of space become vacant from the energy, insurance, and education sectors, respectively, that hindered overall performance. 

Tenant preferences spotlight trophy buildings

Trophy and Class A office assets continue to outperform the remainder of the downtown market with a spread of 1,470 bps between overall Class A and Class B/C product.

The trophy segment, comprised of properties in Vancouver, Calgary, Toronto, and Montreal, posted improved vacancy for back-to-back quarters. The remainder of the market meanwhile slowed, albeit a minor 10 bps in both overall A and B/C Class categories.

Best-in-class product has remained the most stable relative to other tiers with vacancy averaging around 11.0% in trophy assets over the last two years.

Continued strong performance in this segment reflects tenant preferences for quality or well-appointed office buildings. Commanding the highest rates, it is evident that tenants are willing to pay a premium for best-in-class space.

Vacancy tapering off into a plateau

National downtown and suburban vacancy has effectively plateaued having not moved by more than 10 bps over the last three quarters.

Downtown office vacancy experienced a minor uptick of 10 bps this quarter despite six cities experiencing declining rates. The most notable of which was Ottawa with -70 bps.

Instead, major markets like Vancouver and Calgary impacted the overall downtown rate with increases of 120 bps and 50 bps, respectively, to 11.9% and 30.7%. Toronto meanwhile held steady at 18.5%.

The inverse played out in suburban areas as six cities noted increased vacancy. National suburban vacancy decreased 10 bps overall, thanks to Vancouver (-90 bps) and Montreal (-40 bps).

Of the market moves this quarter, no city cited the ongoing trade war as the primary cause, although economic uncertainty has started to creep in, leading some groups to pause.

Sublet space continues precipitous decrease

Space for sublease has declined for an eighth consecutive quarter, now totaling 12.6 million sq. ft. Compared against the Q2 2024 total, this represents a 16.2% decrease year-over-year and an astounding 26.1% decline from the peak two years prior.

On a per market basis, six Canadian cities saw sublet vacancies fall in Q2 2025, with the biggest quarterly decreases on a percentage basis occurring in Montreal and Waterloo Region (16.9% and 16.8%, respectively) and in Toronto on a square footage basis (-740,000 sq. ft.). 

Since Q2 2024, only three markets have seen a rise in total sublet space, with the largest increase recorded in Calgary, up 9.2% year-over-year. M&A in the energy sector being a main contributor to this increase.

AstraZeneca recently executed one of the largest new leases this year in a 250,000 sq. ft. suburban Toronto sublet. Sublease space remains attractive for occupiers looking for turnkey suites or those looking to take advantage of lower-cost opportunities.

Office construction stalls at 20-year low

Q2 2025 reported a total of 2.8 million sq. ft. of competitive office product under construction. This represents a slight decrease from last quarter following completions in Toronto and Montreal. With new development stalled, the office construction pipeline remains at a 20-year low.

The majority of active construction is located in Toronto and followed by Vancouver. All other markets account for a combined 140,000 sq. ft. (4.9% of all projects). Multiple markets including Edmonton, Winnipeg, London and Montreal have no active developments. 

On a national level, 56.6% of all office construction has been pre-leased. However, this is largely due to significant pre-leasing in Toronto (62.2%) and Vancouver (50.0%). As of Q2 2025, no pre-leasing has been recorded in every other market.

Construction starts hit a one-year drought

Office construction once again reported no new project commencements, marking one consecutive year of no starts and two years since anything larger than 100,000 sq. ft. kicked off. 

203,000 sq. ft. of new office space was delivered across two projects this quarter in Montreal and Toronto. The most notable completion being 150,000 sq. ft. at 160 King Street in Montreal, none of which was pre-leased.

Among active construction projects, over 2.2 million sq. ft. of office product is expected to deliver by the end of 2025, with the majority of new space attributed to CIBC Square Phase II in downtown Toronto.

While the office construction pipeline is expected to remain limited, tenant demand will be focused on recently completed or improved product before spilling over to lower-quality Class A or even B assets.

Conversions progress with many more planned

The sole conversion project recorded this quarter saw nearly 30,000 sq. ft. of vacant office space marked for transformation into a 41-unit residential complex in London’s core.

Despite this light quarter, conversions are still very much a part of the conversation in improving downtown areas with many projects in the planning stages. A handful of which are anticipating to move forward in the latter half of the year.

Since 2021, a cumulative 5.7 million sq. ft. of former office product has been removed from inventory related to conversions. An additional 2.4 million sq. ft. has been demolished for other property types over this same time period. Together, they have helped reduced inventory by 1.7%.

Office-to-residential conversions continue to comprise the majority of activity. Life sciences account for the second largest share, however are exclusively occurring in Montreal where there is demand for lab space.

Calgary leads the major Canadian markets in total space converted, followed by Ottawa. Both cities have been early adopters of this trend.