Return-to-office requirements are expected to support a further recovery in Canada’s office market this year, even as economic uncertainty and trade disruptions temper activity in the industrial sector, according to a new report from Royal LePage Real Estate Services.
The brokerage said recently that growing workplace attendance in several major cities is likely to contribute to tighter office conditions in 2026, while industrial real estate remains resilient despite softer momentum tied to tariffs and broader economic concerns.
Matt Jacques
“Much like the residential real estate sector, broader economic uncertainty has weighed on commercial real estate decision-making in recent years,” said Matt Jacques, interim general manager, Royal LePage® Commercial™. “What’s different heading into 2026 is the growing sense of stability. Businesses are no longer reacting to every economic headline and are instead taking a more deliberate, long-term approach to space planning and investment decisions.
“While caution remains, there is optimism that market conditions are beginning to normalize. As confidence gradually rebuilds, we expect to see more consistency in activity across both office and industrial markets throughout Canada. Regional variations, however, mean this trend will unfold diversely across the country.”
Office market recovery tied to workplace shifts
Royal LePage said the office sector, which was heavily affected by remote and hybrid work models during the pandemic, has been gradually regaining momentum. The report points to renewed in-office requirements by large employers, including Royal Bank of Canada, Rogers Communications and Starbucks Canada, which have implemented three-, four- and five-day in-office schedules. Federal public servants are also expected to work in the office four days a week beginning this summer.
“The past two years have been pivotal for the office sector, which has steadily regained momentum following the unprecedented disruption of the pandemic, when downtown cores saw office towers largely empty during lockdown periods. The market is not returning to its pre-pandemic form; rather, it is evolving into something more deliberate and intentional,” said Jacques. “Employers are placing greater emphasis on how space can be used rather than how much space they take up, prioritizing layouts that support collaboration, flexibility and employee experience. That shift is increasingly shaping leasing decisions across the country.
“While hybrid work models will remain part of the equation long-term, rising in-office attendance and clearer workplace strategies are helping to bring greater stability to the market.”
According to a survey of Royal LePage commercial professionals, 66 per cent expect occupier demand for office space to modestly increase or remain stable in their market in 2026, while five per cent anticipate a significant increase. Forty-two per cent expect office vacancy rates to decline this year.
Industrial sector moderates but remains stable
The brokerage said industrial real estate continues to be supported by e-commerce activity, supply chain adjustments and demand for warehousing and distribution space, although rental growth has moderated from pandemic-era highs.
Manufacturing sales rose sharply between December 2020 and December 2021 and have generally remained elevated since, though total sales declined modestly in 2025 amid losses in petroleum, coal and chemical industries. Statistics Canada data cited in the report indicate that about half of manufacturers reported being affected by tariffs.
“The industrial sector has consistently demonstrated its resilience. While there are ongoing economic risks tied to trade policy, tariffs and broader global uncertainty, demand for well-located, functional industrial space remains strong. This is especially true in logistics- and trade-connected markets, where proximity to transportation corridors, ports and population centres continues to drive occupier interest,” said Jacques.
“Looking ahead, a slowdown in new construction and ongoing supply chain realignment will support market balance. As businesses prioritize efficiency and speed to market, the creation of modern industrial facilities will remain a critical component of Canada’s commercial real estate landscape.”
Nearly half, or 47 per cent, of Royal LePage commercial market experts expect occupier demand for industrial space to increase in their markets this year.
Regional differences emerge
The report said performance continues to vary by city.
In the Greater Toronto Area, vacancy rates in most office asset classes declined year over year in 2025, while industrial vacancy rose and asking rents dipped.
Wil Irons
“The push by banks, government offices and tech companies to bring employees back into the office more frequently has turned the tides in Toronto’s office leasing market over the past year. Demand for high-quality office space in the downtown core has increased noticeably, with major companies such as Wealthsimple, Lyft and Nvidia securing significant square footage in 2025,” said Wil Irons, senior vice president of commercial leasing and investments, Royal LePage Signature Realty. “As organizations move away from work-from-home and shared office models, many are prioritizing environments that support worker collaboration, offer proximity to Union Station, and provide access to desirable amenities. This renewed demand has absorbed available inventory in AAA and Class A buildings.”
Irons added: “With many new office development projects shelved during the pandemic, limited new supply is expected to come online in the near term, supporting the continued recovery of Toronto’s office market. On the other hand, Class B and C office spaces in the downtown core are likely to face ongoing softness as tenants gravitate toward higher-quality assets, creating a K-shaped recovery in the market.”
In Montreal, vacancy increased in most office categories in 2025, particularly Class C buildings.
Georges Renaud
“Class A office leasing continues to outperform Class B and C spaces, as employers prioritize high-quality environments with attractive amenities, and that support collaboration and employee experience. Montreal’s workforce has largely operated under a hybrid model, with many employees expected to be in the office three days per week. However, those arrangements are gradually shifting as more organizations move closer to pre-pandemic, in-person schedules,” said Georges Renaud, commercial and residential real estate broker, Royal LePage du Quartier.
“Despite this slowdown, limited availability of industrial space has helped keep a lid on price declines,” Renaud added. “Softening has been most evident among lower-class assets and low-ceiling facilities that offer less operational flexibility. Industrial tenants, however, tend to be less reactive to short-term economic fluctuations, as leasing decisions are typically driven by long-term operational needs. As a result, lease rates are expected to remain virtually flat in 2026, with only high-quality, well-located industrial space commanding a premium.”
In Vancouver, downtown office vacancy for Class A space edged lower in 2025, though asking rents declined across asset classes, while regional industrial vacancy rose.
Raman Bayanzadeh
“Vancouver’s downtown office rental market has remained soft in the post-pandemic period, with the greatest pressure on larger office buildings as companies reduce their footprints and continue using hybrid working models. As a result, downtown landlords are increasingly offering incentives, such as discounted rental rates and extended rent-free periods to attract tenants. In contrast, office markets outside the city core have seen more stable growth in rental rates,” said Raman Bayanzadeh, principal of CRE investment and development team, Royal LePage Sussex.
“While rental costs have since moderated and vacancy rates have risen, market conditions are beginning to recalibrate,” Bayanzadeh added. “Looking ahead, a slowdown in new construction is expected to help rebalance supply and demand, supporting greater stability across the industrial market. As availability tightens, demand is likely to remain focused on port-oriented facilities and modern warehouse space that supports trade, logistics and distribution, positioning the sector for more sustainable, long-term growth.”
In Ottawa, lower-class office vacancy declined in 2025, while industrial vacancy rose modestly and asking rents increased.
Luigi Aiello
“Beginning in July, federal public servants will be required to work in the office four days per week, marking a significant shift in workplace policy. In the near term, softness in the office market is expected to persist as tenants and landlords adjust to this transition,” said Luigi Aiello, commercial and residential sales representative, Royal LePage Team Realty.
“Continued interest from Toronto-based companies seeking cost-effective expansion opportunities is sustaining leasing activity. With limited new supply on the horizon and a diversified economic base, the sector is well positioned to maintain momentum into 2026, particularly if confidence in the broader economy improves.”
In Calgary, office vacancy declined across all asset classes in 2025, while industrial vacancy remained stable and asking rents increased.
Maxime Morrison
“As 2026 unfolds, Calgary’s commercial real estate market is showing clear signs of stabilization and measured growth, presenting opportunities for investors and business owners. Calgary has largely normalized its workplace strategy. Return-to-office mandates are no longer the primary driver of leasing activity. Companies are focusing on rightsizing, optimizing, and designing spaces that enhance collaboration and employee engagement,” said Maxine Morrison, executive vice president and real estate advisor, Royal LePage Benchmark.
“Ongoing tariff uncertainty has had a material impact on the development of new commercial space. Unlike residential construction, commercial buildings rely heavily on steel, which has been subject to tariffs and higher input costs,” Morrison added. “Calgary’s geographic advantages – particularly its proximity to the U.S. border – are expected to give the city a competitive edge over Edmonton and support continued industrial growth in the future.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Entrepreneur. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 and 2024 as one of the top business journalists in the world by PR News. He was also named by RETHINK to its global list of Top Retail Experts 2024, 2025 and 2026.
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