Widespread return-to-office mandates expected to spur tight commercial market conditions in major Canadian cities this year

Economic uncertainty and global trade disruptions temper demand for industrial commercial space

TORONTO, Feb. 26, 2026 /CNW/ - Two of Canada's largest commercial real estate sectors – office and industrial – continue to evolve as the long-term impacts of the pandemic and ongoing global trade disruptions reshape how and where businesses operate. Industrial real estate activity has tapered in most markets across Canada as trade conflict and broader economic concerns create uncertainty. Meanwhile, changes to traditional workplace models and evolving occupier expectations have intensified demand for office space; a segment drastically impacted by remote work during and following the pandemic. These changing dynamics are setting the stage for the next phase of Canada's commercial real estate market, as employers reassess space needs and landlords adapt to new patterns of demand.

"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."

Gradual shifts in labour force participation and workplace attendance continue to influence how commercial space is being utilized across Canada's major markets. In January, the national employment rate edged down 0.1 percentage points to 60.8 per cent.¹ Employment declined most notably in manufacturing, with 28,000 jobs lost, as well as transportation and warehousing. Meanwhile, gains were recorded in other industries, including arts, entertainment and recreation; agriculture; healthcare; construction; and wholesale and retail trade.

"While some sectors, such as manufacturing, are currently facing challenges, expansion in service-oriented and support industries points to future growth rather than contraction," said Jacques. "Looking ahead, these labour market dynamics are expected to influence where and how companies lease space, reinforcing demand for flexible, well-located office environments and efficient industrial facilities that align with changing workforce needs."

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¹ Labour Force Survey, January 2026, Statistics Canada, February 6, 2026

Return-to-office mandates expected to support increased office leasing activity

As Canada's corporate workforce increasingly faces return-to-office requirements, office real estate in major cities is expected to continue its gradual recovery in 2026.

Pandemic-driven adoption of remote and hybrid work models weighed heavily on downtown office markets and dampened leasing activity. That dynamic has shifted, however, as major employers such as Royal Bank of Canada, Rogers Communications and Starbucks Canada recalled staff to their corporate offices in 2025 and early 2026, implementing three-, four- and five-day in-office work schedules. Federal employees will also be back in office four days per 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 real estate market professionals across the country, 66 per cent of experts expect occupier demand for office space to modestly increase or stay the same in their respective market in 2026. Five per cent expect demand will increase significantly. Meanwhile, 42 per cent of experts expect vacancy rates for office space to decrease in their market this year.

Industrial sector remains resilient, despite economic risks

Industrial real estate is expected to remain one of Canada's strongest-performing commercial asset classes in 2026. Although rental growth for industrial spaces has moderated from pandemic-era highs, demand fundamentals remain intact, supported by e-commerce activity, supply chain reconfiguration and the continued need for warehousing and distribution facilities.

Manufacturing sales rose sharply in the early stages of the post-pandemic recovery, driven by the reopening of the economy post-lockdown and pent-up consumer demand. Between December 2020 and December 2021, sales increased by 19.2 per cent² and have since remained elevated, generally sitting in the $65 to $75 billion per month range. This sustained level of activity has been a key driver of demand for industrial real estate across Canada.

More recently, however, momentum in the sector has softened amid ongoing trade disruptions, which continue to pose a risk to demand for industrial space. In 2025, total manufacturing sales decreased modestly by 0.4 per cent,³ driven mostly by losses in the petroleum, coal and chemical industries, which have been susceptible to price volatility and supply chain disruptions as a result of tariffs. According to Statistics Canada, approximately half of manufacturers reported being affected by tariffs through various channels, most notably price increases and higher expenses for raw materials.

"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 (47%) of Royal LePage commercial market experts expect occupier demand for industrial space to increase in their respective markets in 2026.

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² Monthly Survey of Manufacturing, November 2025, Statistics Canada, January 15, 2026

³ Monthly Survey of Manufacturing, December 2025, Statistics Canada, February 16, 2026

Regional realities shape Canada's commercial outlook

Across the country, Canada's office and industrial sectors are advancing at different speeds, reflecting the distinct regional nuances of each market. Some major centres, like the Greater Toronto Area, are beginning to see renewed momentum in office leasing as return-to-office mandates gain traction. Others, however, such as downtown Vancouver and Calgary, continue to lag or have already largely completed their transition back to in-person work environments, resulting in more stabilized conditions.

Industrial markets are similarly uneven. Certain cities have felt the impact of trade tensions and tariff uncertainty more acutely, particularly those with higher concentrations of manufacturing or export-driven industries. In contrast, regions supported by diversified economies, logistics infrastructure and domestic-focused industries have demonstrated greater resilience.

"Similar to the residential sector, Canada's commercial landscape is truly a market of markets," said Jacques. "Each region has its own economic drivers, labour dynamics and industry mix. That diversity means performance will continue to vary by city and property class."

Vacancy rates and rental asking price data for 2025 and 2024 detailed in this report are sourced from Altus Data Studio, a real estate market data and analytics platform offered by Altus Group, a leading provider of commercial real estate ("CRE") intelligence.

2026 Royal LePage Commercial Real Estate Report - Data Chart: rlp.ca/2026-Commercial-Real-Estate-Report-Chart 

REGIONAL SUMMARIES

GREATER TORONTO AREA

In the Greater Toronto Area, vacancy rates in most office asset classes declined year over year in 2025, while the industrial segment recorded an increase in vacancy rates and a dip in asking rents over the same period.⁴

"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."

Industrial market fundamentals in the GTA remain strong, though recent tariff pressures and low consumer confidence have begun to place modest downward pressure on rental rates.

"Smaller, margin-sensitive businesses are really feeling the impact, particularly as leases signed during the pandemic-era surge come up for renewal in a higher-cost environment," said Irons. "The pandemic drove an unprecedented wave of demand for industrial space, fuelled by e-commerce growth and the need for warehousing and distribution facilities among large-scale users such as Amazon. While this initial surge has moderated, long-term structural drivers continue to support healthy demand. As a result, the local industrial sector is expected to remain resilient, with high-quality, well-located units continuing to perform strongly."

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⁴ Detailed data chart available here. Data is sourced from Altus Data Studio, a real estate market data and analytics platform offered by Altus Group. Note: Total Estimated Direct Gross Rent reflects asking rents on active listings in a specific time period. Not all listings disclose asking rents. Asking rental rates do not reflect tenant inducements (including rent-free periods). Data is a lagging indicator, and on-the-ground insights may vary as a result.

2026 Royal LePage Commercial Real Estate Report - Data Chart: rlp.ca/2026-Commercial-Real-Estate-Report-Chart

GREATER MONTREAL AREA

In the Greater Montreal Area, vacancy rates in most office asset classes increased year over year in 2025, specifically in the Class C category, while the industrial segment recorded an increase in vacancy rates and a dip in asking rents over the same period.⁵

"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.

"This demand has helped prevent rental rates for Class A office space from declining, even as pressure persists elsewhere in the market. At the same time, capacity constraints are emerging, as some employers lack expansion plans or sufficient space to accommodate a full return to the office. Supported by Montreal's strong employment base, competition for larger, well-located and amenity-rich office space is expected to remain high, keeping pressure on the upper end of the market."

Renaud noted that industrial rental rates have softened modestly as demand eased over the summer, with many tenants pausing decisions while awaiting greater clarity amid ongoing political and economic uncertainty.

"Despite this slowdown, limited availability of industrial space has helped keep a lid on price declines," said Renaud. "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."

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⁵ Detailed data chart available here. Data is sourced from Altus Data Studio, a real estate market data and analytics platform offered by Altus Group. Note: Total Estimated Direct Gross Rent reflects asking rents on active listings in a specific time period. Not all listings disclose asking rents. Asking rental rates do not reflect tenant inducements (including rent-free periods). Data is a lagging indicator, and on-the-ground insights may vary as a result.

2026 Royal LePage Commercial Real Estate Report - Data Chart: rlp.ca/2026-Commercial-Real-Estate-Report-Chart

GREATER VANCOUVER

In Vancouver's downtown core, Class A vacancy edged lower in 2025 to remain among North America's tightest markets, while asking rents across asset classes also declined. Meanwhile, the office market in the greater region remained more resilient. Across the region, the industrial segment recorded an increase in vacancy rates and a decline in asking rents over the same period.⁶

"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. "Due to ongoing office market softness over the past two years, new supply has continued at very modest levels through 2025. Some developers with previously approved mixed-use applications have responded by boosting residential and hotel components while cutting office square footage to match current demand patterns.

"The silver lining is that current market conditions present a compelling opportunity for office tenants to secure high-quality space in desirable buildings. Many tenants are being selective and taking a measured approach, with more price-sensitive users waiting for clearer signals that the market has reached its bottom before committing."

Bayanzadeh added that industrial rents, which had surged through the pandemic recovery period, peaked in 2024 before moderating through 2025, as e-commerce growth and logistics demand eased from their highs.

"While rental costs have since moderated and vacancy rates have risen, market conditions are beginning to recalibrate," said Bayanzadeh. "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."

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⁶ Detailed data chart available here. Data is sourced from Altus Data Studio, a real estate market data and analytics platform offered by Altus Group. Note: Total Estimated Direct Gross Rent reflects asking rents on active listings in a specific time period. Not all listings disclose asking rents. Asking rental rates do not reflect tenant inducements (including rent-free periods). Data is a lagging indicator, and on-the-ground insights may vary as a result.

2026 Royal LePage Commercial Real Estate Report - Data Chart: rlp.ca/2026-Commercial-Real-Estate-Report-Chart

OTTAWA

In Ottawa, vacancy rates in lower-class office buildings decreased year over year in 2025. Meanwhile the industrial segment recorded a modest increase in vacancy rates – significantly lower than other major cities – and a rise in asking rents over the same period.⁷

"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. "Looking ahead, increased in-office attendance is likely to support modest growth in rental rates and place downward pressure on vacancy levels. However, the federal government's commitment to reducing the size of its workforce through retirements and attrition is expected to temper the pace of recovery, keeping overall market growth measured."

Aiello added that Ottawa's industrial real estate sector remains rooted in strong fundamentals, underpinned by steady demand from health, fitness and manufacturing-related businesses.

"While manufacturing has been more exposed to tariff-related pressures, operators in Ottawa have shown notable resilience. Many of the city's industrial businesses are family-owned or multi-generational enterprises that have weathered multiple economic cycles, allowing them to take a longer-term view when navigating periods of uncertainty," said Aiello. "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."

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⁷ Detailed data chart available here. Data is sourced from Altus Data Studio, a real estate market data and analytics platform offered by Altus Group. Note: Total Estimated Direct Gross Rent reflects asking rents on active listings in a specific time period. Not all listings disclose asking rents. Asking rental rates do not reflect tenant inducements (including rent-free periods). Data is a lagging indicator, and on-the-ground insights may vary as a result.

2026 Royal LePage Commercial Real Estate Report - Data Chart: rlp.ca/2026-Commercial-Real-Estate-Report-Chart

CALGARY

In Calgary, vacancy rates in all office asset classes declined year over year in 2025, while the industrial segment recorded an increase in asking rents and stable vacancy rates over the same period.⁸

"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. "This shift is evident in the increasing demand for premium, productivity-focused spaces, alongside the repurposing of older office inventory. The market is seeing companies adapt their strategies to foster environments that strengthen culture and visibility, with small- and mid-sized enterprises actively seeking scalable, flexible spaces to support ongoing growth.

"At the same time, restrictive parking and accessibility challenges downtown are pushing some office tenants to look outside the city core, placing pressure on suburban vacancies. Small businesses in particular are seeking space that allows them to grow their teams and strengthen company culture, while employees are increasingly valuing visibility to management and opportunities to collaborate in person. In suburban markets, we're also seeing strong demand from health, wellness and family-oriented businesses, including psychology, chiropractic and physiotherapy clinics, and daycares and indoor play facilities, contributing to increased office leasing activity in these areas."

Morrison added that Vancouver's strong industrial market has had a clear spillover effect on Calgary. Many companies are finding it more cost-effective to move goods directly from west coast ports and use Calgary as Western Canada's inland distribution hub, which has placed additional pressure on vacancy rates.

"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," said Morrison. "E-commerce, logistics, distribution, and data centre operators are driving demand, relocating inland from West Coast ports to leverage Calgary's geographic advantage. Ongoing pre-leasing of speculative developments ensures upward pressure on net effective rents. Calgary's infrastructure, population growth, and strategic relocations position the city for sustained industrial rent growth and office market stabilization in 2026.

"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."

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⁸ Detailed data chart available here. Data is sourced from Altus Data Studio, a real estate market data and analytics platform offered by Altus Group. Note: Total Estimated Direct Gross Rent reflects asking rents on active listings in a specific time period. Not all listings disclose asking rents. Asking rental rates do not reflect tenant inducements (including rent-free periods). Data is a lagging indicator, and on-the-ground insights may vary as a result.

2026 Royal LePage Commercial Real Estate Report - Data Chart: rlp.ca/2026-Commercial-Real-Estate-Report-Chart

About Royal LePage

Serving Canadians since 1913, Royal LePage is the country's leading provider of services to real estate brokerages, with a network of approximately 20,000 real estate professionals in over 670 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage^® Shelter Foundation™, which has been dedicated to supporting women's shelters and domestic violence prevention programs for more than 25 years. Royal LePage is a Bridgemarq Real Estate Services^® company, a TSX-listed corporation trading under the symbolTSX:BRE. For more information, please visit www.royallepage.ca.

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SOURCE Royal LePage Real Estate Services

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