Investors are flooding back to Toronto’s office sector, but there’s a catch

At times during the past few years, it seemed that Toronto's office market might never bounce back from the enormous shift towards hybrid and remote-working arrangements brought about by the COVID-19 pandemic.

With vacancy rates climbing and some high-profile landlords offloading assets at steep discounts, there were legitimate questions about whether the sector could fully recover.

But with that era rapidly fading into memory, return-to-office efforts are intensifying in big cities – and that appears to be a key reason why investors are flooding back to the Toronto office sector.

Office investment was one of the prime drivers of a jump in overall commercial real estate investment volume in 2026's first quarter, according to Avison Young, posting an eyewatering 262% year-over-year spike as $485 million worth of sales poured into the space.

That marks a stark reversal from the caution that had defined the sector for much of the post-pandemic period, when appetite remained muted amid lingering doubts about the future of downtown work arrangements.

The trend towards recovery, though, appears consistent across other major Canadian cities: renewed investor interest in office as an asset class is gathering momentum as companies increasingly phase out or significantly curtail work-from-home options.

Large employers in the financial, legal, and technology sectors have been at the forefront of this shift, with several major Bay Street firms tightening their in-office requirements in recent months.

‘Clear separation’ emerges in Toronto’s office market

Still, a caveat flagged over the past year remains firmly in play: newer, higher-quality office space is proving far more appealing to investors than older product with fewer amenities and sometimes poorer layouts. That gap could be widening, not narrowing.

In its latest commercial real estate report, released this week, REMAX Canada noted the rebound at play in the office sector, but Damon Conrad (pictured top), vice president at REMAX Canada Commercial, highlighted that divergence by quality.

"I think office is seeing clear separation between premium amenity-rich buildings and the older assets that need repositioning," Conrad told Canadian Mortgage Professional. "There's a real difference there.

"The strongest office environments today are those that offer quality space, accessibility, and amenities. People have to get an experience that's going to give them a reason to come back to the office and get out of their pyjamas and away from working from home in their robes. It's got to be purposeful."

In February, Royal LePage said it expected a surge in return-to-office mandates  to boost the commercial market across the country this year, a prediction that appears to be bearing out.

But while financing demand for premium product is rising, the divergence in asset quality also underlines the need for investors and brokers to understand which buildings and units are attracting tenants, and why.

A two-speed market

According to Conrad, the split between higher-quality office units and the rest isn't unique to that sector – and appears prominent across a range of other asset classes as well.

"Commercial real estate has become a two-speed market," he said. "Premium assets are performing well while older product is under increased pressure to reposition or restructure depending on what it is."

That dynamic could be fomenting a more complex underwriting environment, with assets that would once have been straightforward to finance now potentially subject to greater scrutiny – especially where vacancy levels remain elevated.

If so-called B- and C-class office units continue to struggle, and in many cases remain empty, investors and owners will face hard decisions about what precisely to do with those underperforming spaces.

Conrad sees a few possibilities. "They're going to have to divest of it, repurpose it, or decide to step up and look at some sort of retrofit or something of that nature," he said.

"There'll be some instances where they're going to have to do improvements and try and be competitive, and then others maybe where the deals and prices on those assets are just going to be reflective of the quality that they are."

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