Toronto’s commercial real estate market is set for stable office leasing in 2026, supported by high tenant demand and return-to-office mandates, a new report says.
The “recent surge in leasing velocity” is expected to continue into the year, with employers seeking spaces “with attractive amenities and quality space that earns their employee’s commute,” according to CBRE’s Canada Real Estate Market Outlook released Tuesday.
At the same time, investor sentiment around offices overall have rebounded, and the volume of Canadian commercial real estate investment sales are expected to grow by about eight per cent.
When incorporating pending merger and acquisition, and portfolio deals, total investment volume could rise to $56 billion this year, up from last year’s $47 billion and what CBRE said is “the third highest volume on record.”
CBRE’s operations include brokerage services, property management, asset services, and mortgage and financial services, according to its website.
The office sector is “continuing to thrive,” said CBRE’s Toronto downtown managing director Molly Westbrook.
“Every month (of 2025), we saw collectively over half-a-million square feet of positive leasing volumes throughout the year. That just means new deals every month,” Westbrook said. “In January alone, we’re seeing 1.1 million square feet of new deals.”
The findings come months after Canada’s major banks ordered workers to return to the office four days a week last fall. Westbrook said tenant growth isn’t limited to the financial sector, however, noting “we’re also seeing FinTech, tech, insurance, larger users.”
In downtown Toronto, a smaller proportion of offices are expected to sit empty this year; about 13.4 per cent of offices are forecast to be vacant, down from last year’s 15.9 per cent, the report said.
In the suburbs, however, vacancy is expected to be 20.5 per cent, largely unchanged from last year’s 20.7 per cent.
Overall, asking rents for “Class A” offices — higher-quality spaces — are projected to reach $29.10 per square foot, on average, up from $28.73 last year. (The report did not indicate rents for Class B and C offices in Toronto.)
Additionally, the report said a lack of “meaningful new supply” is expected after 2026.
“Office leasing is going to be on fire,” Westbrook added. “And then we’re going to continue to watch as space becomes … more scarce.”
Having fewer options is a sign of a healthy market, she said.
Tenants will be looking for the highest-quality spaces, but assets outside this “trophy class” will also benefit, she said.
But Peter Norman, vice-president and economic strategist at real estate data company Altus Group, said the office market is still “structurally oversupplied” in Canada and “and there remains a significant gap between the tight conditions in trophy buildings and the overall market balance.”
There’s an opportunity to remove “functionally obsolete assets from the office stock” with redevelopment and conversions, although many markets face policy hurdles and the soft condo market is weakening the momentum to do this, he said.
According to the report, retail spaces remain “constrained” and few vacancies are expected in most areas, with retailers in fitness, athleisure, beauty, value and “necessity-based retail” anticipated to support “strong market fundamentals.”
However, “big box” spaces in central locations have garnered interest and opened new opportunities, the report said.
The report forecasts stable, but cautious, consumer spending and growing retail sales.
The investment market, meanwhile, is expected to see more capital coming in from outside the country — global investors are looking to Canada and Toronto for “relative stability amid rising geopolitical tensions” — as well as from institutions like pension funds and high-net-worth people.
While Westbrook noted the projections are based mostly on commercial real estate, “multi-family is a huge component of that as well.”
CBRE noted in a press release that investments in senior housing, in particular, are set to become more competitive in the coming years as the aging population drives “exceptional tailwinds in the asset class.”
While “demand will surge and continue to support double-digit rent growth that outpaces expense growth,” only limited new supply is expected because rents are not high enough to make construction financially viable, the release said.
