TORONTO - A recent report indicates a notable development in the Canadian office real estate market, as the national office vacancy rate experienced its first decline since the onset of the pandemic. This shift correlates with an increasing trend towards returning to the office, suggesting a potential stabilization in the market.
According to the report, the national vacancy rate fell to 18 percent by the end of 2025, a decrease from 18.7 percent observed the previous year. This marks a significant milestone in the recovery of the office rental market, which had been adversely affected by the pandemic and the rise of remote work arrangements.
Contributing to this decline in vacancy rates is the fact that construction levels for new office buildings have reached the lowest point in two decades. Furthermore, new construction starts have recorded a historic low, indicating a shift in market dynamics. This reduction in supply is likely to exert upward pressure on rental rates as demand begins to recover.
The report also highlights a strategic response from landlords, many of whom have begun to either convert or demolish underperforming buildings. This trend has effectively reduced the overall inventory of office spaces by 2.2 percent since 2021, aligning supply more closely with the current demand. Such measures reflect a proactive approach to adapting to changing market conditions.
In terms of market activity, the overall net absorption of office space totaled 2.2 million square feet last year. Toronto played a pivotal role in this figure, accounting for the vast majority of net absorption. This growth in Toronto has helped mitigate the negative net absorption seen in other Canadian cities, including Ottawa and Calgary, where vacancy rates remain high.
As businesses react to changing circumstances, several of Canada’s major banks have implemented policies encouraging employees to return to the office more consistently, starting as early as fall 2025. Additionally, the Ontario government has mandated that employees must return to the office five days a week, effective Monday. Such regulatory measures reinforce the push towards a more traditional office work environment, aiming to enhance collaboration and productivity.
Overall, the interplay of reduced vacancy rates, declining construction activity, and strategic adjustments by landlords points to an evolving landscape in the Canadian office market. These developments underline the ongoing adaptation to post-pandemic realities and the potential for further recovery as businesses and employees navigate their return to the office.
