The sector reeled from the impact of COVID-19 shutdowns, but looks to be firmly on the way back
Canada's office market has completed its first full year of sustained recovery, delivering the clearest signal yet that the sector's pandemic-era correction is behind it.
New data from CBRE's Q2 2026 Canada Office Figures show the national office vacancy rate fell to 17.1% in the second quarter of 2026, down from 18.7% a year earlier.
Net absorption turned positive for a fourth consecutive quarter nationally, the first such streak since before COVID-19 disrupted the sector.
Seven of 11 Canadian markets recorded positive absorption in the period, with overall net absorption reaching 1.2 million square feet, led by Toronto, Calgary, and Montreal, each of which absorbed more than 300,000 square feet in the quarter.
"For the first time since before the pandemic, office leasing momentum remained positive for a fourth consecutive quarter in the second quarter of 2026," the report said.
Trophy buildings lead, but demand is spreading downward
The initial phase of the recovery concentrated in top-tier, triple-A office space. Canada's national trophy vacancy rate now sits at 9.4%, just 100 basis points above its pre-pandemic level.
Toronto has the least available premium space of any Canadian city, with an AAA vacancy rate of only 2.6% in Q2, according to CBRE. That scarcity is now pushing tenant demand into the next tier down, a development with direct implications for commercial mortgage brokers financing Class A and Class B assets.
"The first stage of the Canadian office recovery was in trophy buildings and it's encouraging to see demand trickling down into the next-best spaces. The balance of Class A was the primary beneficiary, however even Class B/C vacancy is starting to improve amid a mix of transactional activity and the removal of inventory for building conversions," said Marc Meehan, CBRE Canada research managing director.
Damon Conrad, vice president at REMAX Canada Commercial in Toronto, previously told Canadian Mortgage Professional the quality divide remains pronounced.
"I think office is seeing clear separation between premium amenity-rich buildings and the older assets that need repositioning," Conrad said.
"The strongest office environments today are those that offer quality space, accessibility, and amenities."
For brokers tracking how Canada's commercial real estate market is resetting across asset classes, that trickle-down shift matters as trophy-tier inventory tightens, tenants are beginning to absorb second-tier stock, gradually supporting valuations that have been under pressure since the pandemic.
A constrained pipeline and what it means for lending
New construction is effectively at a standstill. Just one project broke ground across Canada in Q2, in Vancouver, marking only the third start nationally over the past 12 months.
The total office supply pipeline now stands at a historically low 1.2 million square feet, with no significant deliveries expected beyond 2027.
That dynamic is already drawing capital back to the sector at scale. According to Avison Young, commercial real estate investment in Toronto's office market surged 262% year-on-year in the first quarter of 2026, as investors returned to Canada's urban office sector at a pace not seen since before the pandemic.
Since 2021, office conversions and demolitions have removed a combined 12.1 million square feet from national inventory, a 2.6% reduction in total supply that has cleared out underperforming stock and strengthened the competitive position of better-located assets.
CBRE forecasts the national office market will not fully return to pre-pandemic levels until approximately 2030.
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