What Happened

Canada’s office market has officially completed one full year of recovery from the pandemic-induced disruption, with Toronto’s commercial sector now outpacing other major Canadian cities, according to a new report from CBRE Group Inc. Toronto’s office leasing activity in the fourth quarter of 2025 reached nearly 2 million square feet, driven primarily by major financial institutions and technology companies returning to the office. Marc Meehan, CBRE’s research managing director, described the city’s current momentum as significant, noting that demand is surging as businesses execute return-to-office mandates. Adam Jacobs, Colliers International Group Inc.’s national head of research, confirmed that demand is "roaring again," though he cautioned that uncertainty remains an enemy to closing deals and building for the future. The report highlights that while the downtown core is stabilizing, the broader market still faces structural challenges that could hinder a full rebound.

The recovery in Toronto is characterized by a sharp divergence between high-quality assets and older properties. Class AAA office rents have climbed 21 per cent since 2020, rising from $50 to $55 per square foot, while the vacancy rate for trophy downtown properties sits at a tight 3 per cent. In contrast, B and C class properties are grappling with a 25 per cent vacancy rate. Subleased space in downtown Toronto has declined to 2017 levels, and the overall downtown office vacancy rate is approximately 16 per cent. Metrolinx ridership also saw a 10 per cent year-over-year increase in the fourth quarter, signaling a physical return to the city center. However, new construction is not expected to resume meaningfully until 2030 or 2031, leaving the current supply dynamic largely static in the near term.

Why It Matters

The Toronto office market's performance serves as a critical bellwether for the broader Canadian commercial real estate sector. As the country's largest economic hub, Toronto's ability to attract tenants and stabilize rents influences investment flows across the nation. The report indicates that the market is watching Toronto to see if its recovery trends will cascade to other Canadian cities, making its trajectory essential for national market confidence. The stark divide between Class AAA and B/C properties highlights a "flight to quality" among tenants, suggesting that only modern, amenity-rich spaces will command premium pricing in the post-pandemic era. This polarization impacts property valuations, financing terms, and the viability of older office buildings that may struggle to compete without significant capital investment.

Furthermore, the timing of the recovery intersects with significant macroeconomic headwinds. Economic uncertainty stemming from the trade war with the United States directly affects Ontario's manufacturing industry, which in turn influences office demand in the Greater Toronto and Hamilton Area. High unemployment and a sluggish job market present additional challenges, as office leasing is inherently tied to employment growth and corporate expansion. The lack of new construction until 2030 or 2031 means that the current supply constraints will persist, potentially keeping vacancy rates low in prime areas but also limiting the market's ability to adapt to changing tenant needs in the short to medium term. Infrastructure project problems could further hinder staff returning to the office, adding another layer of complexity to the recovery narrative.

Local Vancouver / Burnaby Context

While the verified facts focus exclusively on Toronto, the dynamics observed there—specifically the "flight to quality" and the divergence between trophy assets and older stock—are relevant to the broader Canadian commercial real estate landscape, including Vancouver and Burnaby. In Vancouver, the office market has also faced significant headwinds from remote work adoption, though the specific metrics cited in this report (such as Toronto's 16 per cent downtown vacancy and 21 per cent rent growth for Class AAA) are unique to the Greater Toronto and Hamilton Area. Burnaby, as a major secondary office market adjacent to Vancouver, often sees spillover effects from Toronto's trends, particularly regarding corporate relocation and investment sentiment. However, without specific data linking Toronto's recovery directly to Vancouver or Burnaby's current leasing activity, it is premature to assume a direct causal link. The general trend of major banks and tech companies driving demand in Toronto suggests that similar sectors in the 低陆平原 may face comparable pressures to consolidate into modern, high-quality spaces, potentially impacting the viability of older office buildings in Burnaby's Metrotown or Brentwood areas. The lack of new construction in Toronto until 2030 or 2031 also contrasts with Vancouver's ongoing development pipeline, highlighting different supply-side dynamics between the two cities.

Market Impact

The recovery in Toronto's office market is likely to have a polarizing impact on property values and investment strategies. Investors are increasingly focusing on Class AAA assets, which are seeing rent growth and low vacancy, while B and C class properties face higher risks of obsolescence and financing difficulties. The 21 per cent rent increase for Class AAA space indicates strong pricing power for landlords with modern amenities, whereas the 25 per cent vacancy in older stock suggests significant rent concessions or lease terminations. For the broader market, the lack of new construction until 2030 or 2031 means that existing inventory will remain the primary supply, potentially supporting rents in prime areas but also limiting options for tenants seeking new space. The 10 per cent increase in Metrolinx ridership supports the narrative of a returning workforce, which could stabilize demand for transit-oriented office locations. However, economic uncertainty and high unemployment remain key risks that could dampen leasing activity and slow the recovery in other Canadian cities.

Builder / Developer Perspective

The report indicates that no meaningful new construction activity is expected in Toronto's office market in 2024 or 2025, with new projects not anticipated until 2030 or 2031. This extended pause in development suggests that builders and developers are facing significant challenges in securing financing, navigating regulatory hurdles, or assessing demand viability in the current economic climate. The lack of new supply means that existing inventory will dominate the market for the foreseeable future, potentially limiting opportunities for new development but also reducing competitive pressure on existing landlords. For developers, the focus is likely shifting towards retrofitting or repositioning older assets to meet the demands of Class AAA tenants, rather than initiating new ground-up projects. The high vacancy rates in B and C class properties may also present opportunities for acquisition and redevelopment, but only if the economic environment stabilizes and demand for office space continues to recover.

BurnabyHouse Insight

Toronto's office market is undergoing a profound structural shift, where the gap between "trophy" assets and older stock is widening into a chasm. The 21 per cent rent growth for Class AAA space, juxtaposed with a 25 per cent vacancy rate for B and C class properties, signals that tenants are no longer willing to compromise on quality. This "flight to quality" is not just a Toronto phenomenon; it reflects a broader national trend where only modern, amenity-rich spaces can command premium pricing. The lack of new construction until 2030 or 2031 means that the current supply dynamic is frozen, forcing a choice between paying up for prime assets or taking on the risk of older, less competitive stock. For investors and developers, the key takeaway is that the era of broad-based office market recovery is over; success now depends on precise asset selection and an understanding of the deep polarization in tenant demand.