Canada's commercial real estate market resets as investors pursue quality assets

After more than a year of elevated caution, Canada's commercial real estate market is showing concrete signs of a measured recovery.

Interest rate stability has drawn investors back to Canada's commercial real estate markets, with capital increasingly targeting strong cash-flow assets as leasing activity strengthens and fundamentals firm up, despite ongoing economic uncertainty, according to REMAX Canada's 2026 Commercial Real Estate Report.

The report, released Monday, examined first-quarter activity across 12 major Canadian markets and found that the commercial property market has continued to evolve with improved absorption, particularly in the office sector, where return-to-office mandates are supporting increased leasing activity in premium space. 

"While uncertainty shaped much of 2025, we're now seeing a clear shift in investor behaviour," said Damon Conrad, vice president of REMAX Canada Commercial.

"Capital remains cautious and focused on preservation, but as financial conditions stabilise, deferred demand is beginning to re-emerge. Investors are highly selective, but they are increasingly prepared to act where income stability and long-term value are evident."

That selectivity is the defining characteristic of the current cycle. Following an extended period of price discovery, early signs of cap rate compression have materialised in select segments as borrowing costs have stabilised and income streams remained resilient.

Given a narrowing bid-ask spread and more disciplined underwriting, investors have been increasingly able to make deals come together.

Canada's commercial real estate market appeared to pass an important milestone in the first quarter of 2026, with both office and industrial vacancy edging lower for the first time in years, according to figures from Colliers, a shift hinting at a slowly healing market after the pandemic-era shock.

Read more: What the BoC rate hold means for Canada’s commercial market

A divided office market

Demand for top-tier, amenity-rich buildings in central business districts is rising, while older, lower-grade stock faces mounting pressure.

In Toronto, 74% of Avison Young professionals expected stronger activity in 2026 and a further "flight to quality" in office, while GTA suburban and Southwestern Ontario brokers pointed to rate cuts and ongoing industrial demand as reasons for cautiously optimistic expectations. 

That divergence is playing out unevenly across markets. According to the REMAX report, cities such as Toronto, Vancouver and Ottawa are seeing strong uptake in newer, well-located office space, while Calgary, Winnipeg and London are contending with persistently high vacancy in ageing downtown inventory, prompting conversion programs and repositioning initiatives to gradually improve overall balance.

Suburban office markets have been a quiet outperformer, with strong absorption reported across major markets as tenants prioritise cost, accessibility and safety.

Retail holds firm; industrial recalibrates

Retail has emerged as one of the most resilient asset classes in the current cycle, defying expectations of a prolonged malaise.

Grocery-anchored and service-oriented retail in markets such as Calgary, Regina, London, Hamilton-Niagara and Halifax continue to report tight vacancy and robust investor demand. In some markets, landlords have held out for top-dollar rents, further limiting available stock.

Mark Fieder, principal and president at Avison Young Canada, said retail was a surprisingly bright spot for the commercial market, noting that many shopping centre owners are finding inventive ways to backfill vacancy left by department store closures.

"Overall, retail is doing very well. I think in Canada, we’ve been fortunate in that a lot of our retailers – in addition to having physical space – also implemented very robust online marketing solutions for their businesses as well. The two working together has been pretty powerful and they’re seeing the benefits from that today," he told Canadian Mortgage Professional earlier this year.

On the industrial side, the picture is more nuanced. Supply-constrained markets such as Regina, Winnipeg, Ottawa and Halifax have seen a growing trend toward repurposing existing buildings, while Vancouver and Hamilton-Niagara are absorbing new supply, moving conditions toward a more balanced footing.

Notably, Canada's industrial real estate sector has seen an uptick in demand for recreational space, with the popularity of pickleball, padel, cricket and rock climbing on the rise. Churches have also shown growing interest in industrial product in markets where zoning permits. 

Multi-family adjusts as supply arrives

In the multi-family sector, new completions have outpaced absorption in some major markets.

Vacancy rates have risen in Vancouver, Calgary and Halifax, while demand for existing rental stock remains firm in Regina, Winnipeg and Saskatoon.

In response to surplus inventory in the GTA, High Art Capital, in conjunction with Building Ontario Fund — a board-governed Crown agency — is launching a $1.3-billion fund set to acquire and convert unsold condo inventory into rental housing, a move that could materially reduce GTA vacancy rates if successful.

Read more: Jesta Group launches $500m Toronto condo buying spree amid market slump

With housing affordability still a national concern, developers have been pivoting from condos to purpose-built rental, leveraging CMHC programmes and municipal incentives. 

Moreover, Statistics Canada's Population Projections for Canada (2025–2075), released in January 2026, estimated the Canadian population, sitting at approximately 41.7 million in 2025, would continue to increase over the next decades to between 44.0 million and 75.8 million by 2075.

That's a demographic reality that underpins the long-term case for rental housing investment. 

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