Commercial Real Estate Market at Turning Point as Vacancies Drop: Report

Why It Matters

The tightening vacancies signal a turning point for Canadian CRE, affecting investors, developers, and tenants as office supply eases and industrial demand strengthens, reshaping capital allocation and leasing strategies.

Key Takeaways

• Office vacancy fell to 13.6%, down 1% YoY.
• Industrial vacancy dropped to 3.5%, first decline since 2022.
• New office construction under 2M sq ft, far below prior averages.
• Premium office spaces absorb demand; broader market lagging.
• Industrial absorption outpaced supply, 3.6M vs 3M sq ft.

Pulse Analysis

The latest Colliers International analysis marks a rare inflection in Canada’s commercial‑real‑estate cycle. After years of rising office vacancies that peaked at double‑digit levels during the pandemic, the 13.6% rate recorded in the first quarter of 2026 reflects a modest but meaningful rebound driven by a rapid return‑to‑office trend in Toronto and other major metros. At the same time, industrial vacancy slipped to 3.5%, indicating that the logistics sector is shedding excess inventory built during the post‑COVID construction boom. Together, these metrics suggest the market is moving from a crisis‑mode toward a more normalized, albeit still constrained, environment.

Supply dynamics are reshaping the outlook for developers and investors. Office construction has nearly halted, with less than two million square feet under way—down sharply from the 1.8 million‑square‑foot quarterly average seen between 2021 and 2023. This slowdown, combined with the long lead times of three to seven years for new projects, means that fresh office space will be scarce for the rest of the decade. Stakeholders are therefore looking to repurpose existing, under‑performing towers into residential or mixed‑use assets to bridge the gap between current vacancy levels and the 5‑10% range considered optimal for a healthy market.

On the industrial side, absorption outpaced new supply in Q1, with 3.6 million sq ft leased versus 3 million sq ft delivered. The sector’s resilience is bolstered by strong e‑commerce demand and a robust logistics network, though short‑term leasing activity may pause as market participants await the outcome of the Canada‑U.S‑Mexico Agreement renegotiations. In the longer view, continued demand for warehouse space, especially in hubs like Toronto, Vancouver, and Calgary, is expected to tighten the market further, reinforcing Canada’s position as a strategic node in North‑American supply chains.