Toronto Leads the Canadian Office Market Recovery in the Third Quarter

Growing demand results in 1.6 million sq. ft. of positive net absorption in Toronto in Q3. But other Canadian cities are still waiting for their turnaround.

After multiple challenging years, strong office leasing activity in Toronto in the third quarter of 2025 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. Downtown office vacancy in Canada’s biggest city 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. Office demand was not as enthusiastic in other Canadian cities in the third quarter; however, vacancy rates in those markets are now below pandemic-era highs.

Canada's largest office market is clearly driving the national trend. There was 1.6 million sq. ft. of positive net absorption of office space across the Greater Toronto Area (downtown + suburbs) in Q3. And downtown Toronto witnessed a significant drop in vacancy thanks to numerous leasing transactions over 50,000 sq. ft. 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 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. Toronto led the country with a 250 bps tightening of its downtown Class A supply, and four other markets also noted improving downtown Class A fundamentals: Winnipeg and Halifax (-100 bps), Ottawa (-60 bps) and Edmonton (-10 bps). Montreal, Ottawa and Vancouver saw slowing office leasing in Q3, each recording 100,000 sq. ft. of negative net absorption.

“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.”

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. Given the recent rebound and levels of demand for premium office product, some shelved projects could become viable once again.

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 national industrial availability rate rose further by 20 bps quarter-over-quarter to 5.5% in Q3. Availability has continued to trend higher across almost every market save for Edmonton, which remains the only market to have recorded year-over-year decreases in its industrial real estate availability rate for the last four quarters.

The pace of industrial construction starts moderated in Q3, with 4.4 million sq. ft. of new projects launching nationwide. 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%.