Is the Commercial Real Estate Market About to Explode? Shocking Vacancies Drop Revealed!

OTTAWA – Canada’s commercial real estate market may be experiencing a significant shift, as recent analysis reveals a simultaneous decline in national vacancy rates for both office and industrial properties for the first time since 2020. According to a report from Colliers International, the national office vacancy rate dropped to 13.6 percent in the first quarter of 2026, a decrease of one percentage point compared to the same period last year. This marks one of the most noteworthy improvements observed since the onset of the COVID-19 pandemic.

The situation is even more promising for Canada’s industrial market, which recorded its first national vacancy decline since 2022, now resting at 3.5 percent. These trends indicate that the commercial real estate market is trending toward a more balanced environment.

“It was quite unprecedented how long, especially office vacancy, went up,” said Adam Jacobs, head of research for Colliers Canada, in an interview. He emphasized that after a prolonged period of rising vacancy rates, the recent momentum in returning to the office—especially in Toronto—has been rapid and transformative.

However, Jacobs noted that the demand for leasing remains concentrated in “the best of the best” buildings, suggesting it may take time for this positive momentum to extend to less sought-after properties. Major urban centers like Toronto continue to grapple with an oversupply of office space, exacerbated by a surge in completions following the pandemic, according to Ben Haythornthwaite, director of market analytics at CoStar Group.

“The office market is like if you had a patient in the intensive care ward, they’ve now moved into the general ward,” Haythornthwaite explained. “It’s still sick, but it’s not getting any worse, and that’s why we’re seeing vacancy tighten up.”

While many companies have begun transitioning their employees back to the office for at least part of the week, the report indicates that the growth of inventory is grinding to a halt. Currently, there are less than two million square feet of new office space under construction, a significant downturn from the period between 2021 and 2023, when an average of 1.8 million square feet of new supply was delivered nationally each quarter.

This construction slowdown means Canada is unlikely to see substantial supply gains before the end of the decade, as building projects typically take between three to seven years to complete, according to analyst Shalabh Garg from Veritas Investment Research. Garg predicts that vacancy rates will continue to fall, particularly as more office spaces are repurposed for residential use, although reaching pre-pandemic levels seems increasingly unlikely.

“Five to ten percent vacancy rate is what’s optimal, but it’s hard to see us getting there,” he stated, pointing out that the last time construction activity was this slow was during the early 2000s.

In contrast, the industrial market appears to be bouncing back strongly after facing a brief shock due to tariffs and trade uncertainties last year. The Colliers report reveals that market absorption outpaced new supply in the current quarter, with over 3.6 million square feet newly leased, compared to three million square feet delivered.

Jacobs noted that this trend indicates stabilization in the industrial sector after a period of inventory accumulation. “Anywhere you live, you can notice a lot of new warehouse space was built in the last five years, and there is just kind of a natural cycle to every market,” he remarked. “It takes a while to absorb it. But I think we’re kind of through the other side of that in both the office market and the industrial, where a lot was built, it was difficult to build it all and now the building is really slowing down and we’re starting to see those spaces fill up.”

Furthermore, Colliers reported that industrial construction starts proved resilient in the first quarter, with 5.6 million square feet of new projects commencing. Major cities including Toronto, Vancouver, and Calgary accounted for a remarkable 76 percent of all new starts.

“For the most part, I think we’re going to continue seeing demand increase for industrial space, and we will see that space absorbed,” Haythornthwaite added. However, he cautioned that the impending renegotiation of the Canada-United States-Mexico Agreement could bring uncertainty in the short term. “I think we’re probably going to see a slowdown in leasing over the next couple of months, just while people wait and see what happens with that because we’re getting so close to it now.”