Canada’s office market is pulling out of its pandemic-era slump, with national vacancy rates falling from a 2025 peak and forecasts pointing to further declines through 2028 — though the recovery is playing out very unevenly across cities and building types, according to data from CoStar Group and reporting from The Globe and Mail.
The national office vacancy rate peaked at 10.4% in the second quarter of 2025 before falling to 9.8% by the second quarter of 2026, CoStar said. The firm’s latest forecast calls for the rate to keep declining, reaching 9.3% by the end of 2027 and 8.7% by the end of 2028 — both improvements on its earlier projections of 10% and 9.4%, respectively. CoStar attributed the upgrade to stronger-than-expected demand for space.
A Tale of Two Office Markets
Mario Lefebvre, chief economist for Canada at CoStar Group, described the recovery as “a tale of two markets.” Higher-end office buildings have posted positive net absorption averaging 1 million square feet per quarter since the second half of 2021, he said, while absorption across all other office assets combined was deeply negative over that same period — only turning positive since the second half of 2025.
That divide is expected to show up in rents as well. CoStar forecasts rent growth of roughly 4% for higher-end assets, compared with about 2% for the rest of the market, a pattern the firm calls a continued “flight to quality.”
Crucially, CoStar said the projected vacancy decline is not primarily being driven by a surge in tenant demand. Net absorption is expected to remain modest by historical standards — around 1 million square feet per quarter in 2027 and 1.75 million square feet per quarter in 2028 — while new construction all but dries up. Deliveries are expected to peak in 2026, driven in part by the second phase of CIBC Square in Toronto, before falling to roughly 200,000 square feet net by the end of 2027.
Lefebvre cautioned that risks remain tilted to the downside, citing trade and tariff uncertainty, higher fuel costs and a declining population as factors that could weigh on the economy and slow absorption. Over the longer term, he said, CoStar expects “equilibrium to be restored” as demand for office space grows alongside the broader economy.
Toronto Leads the Turnaround
Nowhere is the shift more visible than in downtown Toronto. Across 47 large downtown towers tracked by CoStar, the availability rate — which includes vacant space, sublet space and space coming to market within 30 days — peaked at 14.2% in early 2025, up from 13.7% a year earlier. By last month, that rate had been cut in half, while the narrower vacancy measure fell to 5.6% from 11.9%, The Globe and Mail reported. Across the wider financial district, availability dropped to 10.1% from a 2024 peak of 17.9%.
Much of that turnaround traces to Royal Bank of Canada’s announcement in May 2025 that staff would need to return to the office four days a week that fall — a move Avison Young principal Stan Krawitz called a “watershed moment” for the downtown core. Other major banks quickly adopted similar mandates. CIBC absorbed most of the sublease space Shopify had vacated at The Well, while Scotiabank added roughly 410,000 square feet across three separate leases. Krawitz said rents have risen “significantly” over the past year in some buildings, and CoStar’s Ben Haythornthwaite said landlords no longer need free-rent incentives to fill space, calling the earlier concessions “smoke and mirrors” that nonetheless worked.
The office influx has also drawn new tenants into the core. Ride-share company Lyft is moving hundreds of employees into 90,000 square feet at First Canadian Place, up from a smaller office that housed roughly 50 people when it opened in 2024, with plans to grow its Toronto workforce beyond 500.
Recovery Remains Patchy Beyond the Core
The rebound is far from universal. Calgary has returned to pre-pandemic vacancy levels, though those levels remain historically elevated, while Vancouver and Montreal are still adjusting to tenants needing less space than before 2019. Across the broader Greater Toronto Area, vacancy sits near 8%, still roughly double 2019 levels. Even within Toronto, buildings north of King Street carry vacancy rates about one percentage point higher on average than those to the south, which Haythornthwaite linked to proximity to Union Station and highway access in a “gridlock-ridden city.”
Worker attitudes toward the mandates remain mixed. A 2026 study by Source Office Furniture, built on more than seven million employee responses through the AskPolly platform, found more than 83% of Canadian workers expressed some support for return-to-office policies, but 69% disagreed with a full five-day requirement. Only 24.4% of respondents said they were now in the office five days a week, down from roughly 83% before the pandemic. In Toronto and Vancouver, resistance was tied more closely to commute time and cost, while in Calgary, Halifax and Winnipeg it was linked more to office-culture expectations. Nationally, 97.5% of respondents said improved workspace design would make them more comfortable with return-to-office policies, with commuting cited as the top barrier to returning — a dynamic Source Office Furniture president Matt Stewart summarized as employees wanting “a reason to come in.”
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