Skip to main content
News Analysis

Canada's Commercial Real Estate Hits a Turning Point: What Q1 2026 Vacancy Drops Mean for Tenants, Owners, and Workers

Office and industrial vacancy rates fell together for the first time since 2020. Here's how Canadian business owners, commercial tenants, investors, and workers should respond to the shifting market in Toronto, Vancouver, Calgary, Montreal, and beyond.

By Refdesk Team

Canada's Commercial Real Estate Hits a Turning Point: What Q1 2026 Vacancy Drops Mean for Tenants, Owners, and Workers

What This Means for You

A simultaneous decline in office and industrial vacancy — the first since 2020 — is the kind of statistic that rarely reaches the kitchen table, but its practical implications are large and immediate. Based on our analysis of the Q1 2026 Colliers data and current Bank of Canada policy settings, the shift has concrete consequences for anyone signing a lease this year, buying a condo in a mixed-use building, working in a downtown tower, selling a small logistics business, or thinking about commercial real estate as part of a TFSA or self-directed RRSP. The window for tenant-friendly lease terms is narrower than it was 12 months ago, but it is not yet closed. What you do between now and the end of summer 2026 may determine whether you lock in 2024-level incentives or pay 2027-level rates.

If You're a Canadian Small Business Owner Leasing Office Space:

Immediate action (this spring):

  • If your lease expires within 18 months, begin renewal negotiations now. Based on Colliers' Q1 2026 data, the national office vacancy rate dropped to 13.6% from 14.6% year-over-year; landlords are starting to pull back on free-rent periods and tenant improvement (TI) allowances as absorption outpaces supply.
  • Request three-year and five-year renewal options from your landlord side by side. The leverage you have today — free months, higher TI budgets, expansion rights — is worth more locked in now than negotiated in 2027 when the supply/demand trend may have tightened further.
  • Benchmark your current gross rent against asking rents in your building and submarket. Colliers and CBRE publish quarterly market reports; use them or ask your tenant-representation broker for a comparable-rent memo before you negotiate.

What to prepare and preserve:

  • A written list of your must-haves, nice-to-haves, and walk-away points. In a tightening market, landlords test how prepared tenants are; a prepared tenant still gets most of the deal they want.
  • Your own utility, insurance, and operating-cost history for the past three years. If the landlord proposes rising operating cost estimates, your historical data is the most credible counter.
  • A realistic floor-plan and headcount forecast for the next five years. Tenants who oversize "just in case" pay for empty square footage; tenants who undersize lose leverage at renewal. The middle path — a right-sized premise with a defined expansion option — is where the best economics are.

Resources:

Example scenario: A 12-person marketing firm in downtown Toronto currently paying $34/sq ft gross on a 3,000 sq ft suite is facing a renewal. In Q1 2025, comparable space was commanding $30–32/sq ft with 6 months free and $40/sq ft TI. In Q1 2026, based on Colliers' market absorption data, comparable space is more likely around $32–35/sq ft with 3–4 months free and $25–30/sq ft TI. A 5-year renewal locked in today at $33/sq ft with $30/sq ft TI and 4 months free is worth approximately $100,000–$150,000 more over the term than the same deal signed in early 2027 if current absorption trends continue.

If You're a Commercial Landlord or Building Owner:

Immediate action:

  • Review your renewal pipeline for the next 18 months. If your building in Toronto, Vancouver, Montreal, Calgary, or Ottawa has leases rolling, you may be able to recapture some of the concessions you gave during 2023–2024.
  • Order a rent-roll stress test: if interest rates stay above 3% through 2027, what does your debt-service coverage look like at your current NOI? The turning-point data is encouraging, but it is Q1 2026 — one quarter does not make a cycle. A stress test prepares you for a range of outcomes.
  • Consider a mid-term refinancing window. Lenders have been cautious on older office assets; evidence of positive absorption may unlock better terms from Canadian commercial banks, credit unions, and alternative lenders.

What to watch:

  • Your submarket's specific performance. Colliers reports that five of six major markets recorded quarter-over-quarter vacancy declines in Q1 2026. That means one major market did not. If that is yours, your strategy is different.
  • The CUSMA (Canada-U.S.-Mexico Agreement) renegotiation timeline. Industrial demand is tied to trade; any prolonged trade uncertainty affects warehouse leasing and industrial absorption more quickly than it affects office leasing.

If You're Looking to Buy Into Commercial Real Estate (REITs or Direct):

Immediate action:

  • Review the Canadian REIT sector's published portfolio data. Dream Office REIT, Allied Properties REIT, RioCan REIT, and H&R REIT all publish detailed occupancy data by building in their quarterly supplementals.
  • Compare the Colliers Q1 2026 market data against the REITs' portfolio disclosures. A REIT whose own office occupancy is meaningfully higher than the national 86.4% occupancy rate may be under-earning market rents and have upside; one materially lower may have structural issues unique to its assets.
  • If you invest through a self-directed RRSP or TFSA, note that REIT distributions are often a mix of dividend, return-of-capital, and other income types with different tax treatments. Request the T3 breakdown from your broker for planning purposes.

Example calculation: A REIT trading at 0.75x net asset value (NAV) with an 85% portfolio occupancy rate is pricing in continued vacancy. If your view is that market absorption is accelerating — as Q1 2026 Colliers data suggests — you are implicitly betting on a re-rating toward NAV. The upside is measurable; the downside is that Canadian office REITs traded well below NAV for most of 2022–2024 for a reason. Size positions accordingly.

If You're a Commercial or Industrial Real Estate Worker:

Immediate action:

  • Update your resume and LinkedIn with Q1 2026 transactional language. The market is moving from a "workout and restructuring" phase (heavy emphasis on lease extensions, forbearance negotiations, and workouts) to a "transactional and development" phase (new leasing, sales, and selective construction). Your skills inventory should reflect that shift.
  • If you are a broker, recalibrate your pipeline toward new leasing and sales opportunities rather than assignment and sublease work. Sublease inventory tends to shrink first in a recovery.
  • If you are a construction or project manager, industrial construction starts were resilient in Q1 2026 according to Colliers, with 5.6 million sq ft of new projects breaking ground — Toronto, Vancouver, and Calgary driving 76% of starts. Job opportunities follow the cranes.

If You're a Downtown Worker Who Wants to Understand the Return-to-Office Trend:

The Q1 2026 data supports what Colliers' Adam Jacobs described to The Globe and Mail as "very rapid" return-to-office momentum. Based on our analysis of the underlying absorption and vacancy numbers, what that likely means for you is:

  • More in-office days. Employers with leases signed during 2023–2024 negotiated aggressively on space. As they right-size back to full capacity, expect hybrid policies to shift toward four days in office.
  • Less free space in your building. Amenity floors, lounge spaces, and common areas that were expanded to lure workers back may be reclaimed as tenant fit-outs absorb the space.
  • Higher downtown foot traffic. This generally supports the food, retail, and transit sectors that depend on commuter volume. If you work in hospitality or retail near a major office tower, it is a reason to negotiate better hours and wages now, before the market tightens further.

For All Canadians:

  • Urban housing supply: When office absorption strengthens, office-to-residential conversion proposals slow down. Some cities — Calgary in particular — have been active on conversions. Watch your municipal council's decisions on conversion grants in the next 12 months.
  • Public transit finances: Transit agencies depend on commuter volume. A genuine return-to-office trend is cautiously positive for the fare revenue of TTC, STM, TransLink, Calgary Transit, OC Transpo, and others.
  • Tax base: Commercial property tax assessments are tied to valuation, which is tied to rents and occupancy. A recovery means stabilizing (and eventually rising) commercial tax contributions — which may affect future residential property tax decisions at your municipal council.

The News: What Happened

According to The Globe and Mail, Canada's national office vacancy rate fell to 13.6% in the first quarter of 2026, down one full percentage point year-over-year, based on a Colliers International report. As reported by the Globe and Mail and BNN Bloomberg, office absorption totalled 3.6 million square feet in Q1 2026, outpacing 3.0 million square feet of new supply, with five of six major markets recording quarter-over-quarter vacancy declines.

BNN Bloomberg and The Globe and Mail reported that industrial vacancy declined to 3.5% nationally — the first industrial vacancy decline since 2022 — with absorption of approximately 3.6 million square feet against 3.0 million square feet of new supply delivered in the quarter. Canadian Mortgage Trends reports that Colliers described the combined office-and-industrial decline as the first simultaneous drop for both property types since 2020.

According to The Globe and Mail, Adam Jacobs of Colliers Canada said: "It was quite unprecedented how long, especially office vacancy, went up... the return-to-office momentum... has been very rapid." Ben Haythornthwaite of CoStar Group characterized the office market recovery to The Globe and Mail as moving from "intensive care ward" to "general ward" — still challenged, but stabilizing.

The Globe and Mail reports that industrial construction starts remained resilient in Q1 2026, with 5.6 million square feet of new projects breaking ground. Toronto, Vancouver, and Calgary together accounted for 76% of all new starts.

According to The Globe and Mail and Connect CRE Canada, less than two million square feet of new office space is currently under construction in Canada — a sharp downswing from the 2021–2023 development cycle. Connect CRE Canada, citing the Colliers report, noted that this is the first simultaneous office-industrial vacancy decline in 26 years when measured against earlier data sets.

Colliers and The Globe and Mail report the outlook as cautiously positive, with vacancy rates expected to continue declining but unlikely to reach pre-pandemic levels (considered by industry analysts to be in the 5–10% range for office) in the near term. The Canada-United States-Mexico Agreement renegotiation was cited as a near-term uncertainty for industrial demand.

Analysis: Why This Matters

Based on our analysis of the Q1 2026 Colliers data and the broader Canadian macroeconomic environment, three shifts deserve attention.

First, the turning point is real but narrow. A 1-percentage-point drop in office vacancy is a meaningful data point, but 13.6% is still substantially above the 8–10% range most analysts consider structurally healthy. The implication is that market conditions favour tenants in aggregate but favour landlords in the best buildings (trophy Class A towers in core submarkets). Your negotiating position depends heavily on which type of building you are in.

Second, industrial recovery is more trade-sensitive than office recovery. Industrial demand is elastic to cross-border trade flows; office demand is elastic to return-to-office policies. If you are in industrial, your risk is concentrated in the CUSMA renegotiation. If you are in office, your risk is concentrated in the sustainability of the return-to-office trend — which has accelerated but is not irreversible.

Third, the construction pipeline is the sleeper story. Less than 2 million square feet of office space under construction is a multi-decade low. If absorption continues at current rates, the market transitions from over-supplied to under-supplied much faster than headline vacancy numbers suggest. That tightens options for tenants signing long leases now versus waiting.

Historical Context:

The last simultaneous office-and-industrial vacancy decline was in 2020, just before COVID-19 disrupted both markets in opposite directions — office demand collapsed on work-from-home, while industrial demand surged on e-commerce. What is remarkable about Q1 2026 is that both markets are normalizing together for the first time in six years. The pattern is more consistent with a traditional cyclical recovery than the post-pandemic shocks of 2021–2023.

Pre-pandemic office vacancy rates in Canada ranged between 8% and 13% depending on cycle position. The 13.6% national figure means the office market has traced a full pandemic cycle: roughly 9.5% pre-COVID, peaking around 15% in 2023–2024, now slowly drifting back toward historical norms.

What Happens Next:

  • Q2 2026 (April–June): Watch the next Colliers and CBRE quarterly releases for confirmation that the Q1 trend continues. A single quarter is data; two quarters is a trend.
  • Fall 2026: Renewal negotiations for January 2027 leases are being finalized. This is the period when the market-level terms harden. Tenants with lease expiries in 2027–2028 should have already started conversations.
  • 2027: CUSMA renegotiation conclusion (or lack thereof) will be decisive for industrial. Office will hinge on whether hybrid-work policies finalize around 3 or 4 days in office.
  • Late 2027 – 2028: The thin construction pipeline starts to bite. New space deliveries drop significantly, and the tenant-favourable balance begins to shift — first in the strongest submarkets, then broadly.

Your Action Plan

Immediate (This Week):

  • If you have a lease expiring in 18 months or less, request a renewal proposal from your landlord
  • Download the latest free Colliers and CBRE market reports for your city
  • Calculate your rent per square foot and compare it against published asking rents for your submarket
  • Subscribe to your commercial broker's quarterly newsletter if you do not already receive one

Short-term (This Month):

  • Engage a tenant-representation broker if you are facing a renewal or relocation
  • Model two renewal scenarios: signing now versus waiting 12 months
  • If you are a landlord, stress-test your rent roll at current and higher interest rates
  • Review your property insurance and operating expense trajectory

Long-term (This Year):

  • Track Q2, Q3, and Q4 2026 market reports to confirm the turning-point trend
  • If investing in commercial real estate, compare REIT portfolio occupancy to Colliers market data
  • Monitor the CUSMA renegotiation timeline for industrial exposure
  • Plan for the 2027–2028 window when the thin construction pipeline tightens the market

Other Perspectives

Brokerage / Industry View:

Adam Jacobs of Colliers Canada, quoted in The Globe and Mail, characterized the return-to-office momentum as "very rapid" and said the duration of rising office vacancy had been "quite unprecedented." Ben Haythornthwaite of CoStar Group, also quoted in The Globe and Mail, described the market as moving from "intensive care ward" to "general ward" — a cautious metaphor acknowledging improvement without declaring full recovery.

Investor / Analyst View:

Shalabh Garg of Veritas Investment Research, cited in The Globe and Mail, flagged that although the data is positive, CUSMA renegotiation continues to cast uncertainty over industrial demand. BNN Bloomberg reported that analysts remain cautious on Canadian office REIT valuations given elevated vacancy rates compared to pre-pandemic norms.

Municipal / Planning View:

Office-to-residential conversion programs in cities such as Calgary have relied on persistently high vacancy as the policy rationale. Connect CRE Canada notes that sustained absorption and vacancy declines could alter the business case for conversions in some markets, which would then affect municipal housing supply strategies and the associated grant programs.

Tenant Advocacy View:

Tenant-representation brokers across Canada have commented publicly throughout 2025 and 2026 that tenant leverage peaked in late 2023 and has been gradually softening. The Q1 2026 Colliers data provides quantitative support for that observation. Tenant-side advice has consistently emphasized that flexibility premiums (shorter term, expansion rights, termination options) are best negotiated during a tenant-favourable market.

Worker / Labour View:

Return-to-office trends affect transit ridership, downtown employment, and the commercial service sector. Public-sector unions and commuter advocacy organizations have historically argued that employer-driven return-to-office policies should be paired with improved transit service, childcare support, and commuting subsidies. The Q1 2026 shift adds urgency to that policy conversation at both federal and municipal levels.

Note: Including multiple perspectives does not imply all views are equally weighted, but ensures readers can assess the market shift on the full record.

Corrections Policy

We strive for accuracy. If you find an error in this analysis, please email us at [email protected]. We will promptly investigate and correct any factual inaccuracies.

Updates:

  • No corrections to date (as of April 20, 2026)

Sources

Get the Daily Canadian Briefing

The news, policy changes, and money moves that matter — delivered to your inbox every morning.

We'll send a confirmation email. No spam, ever.