Return-to-office mandates are having a major impact on leasing, as vacancy has dropped in the majority of markets nationwide, according to Colliers Canada’s just-released Q4 2025 National Market Snapshot report.

The national downtown and suburban office vacancy rates both declined during the quarter, leaving the overall rate at 13.9 per cent, while average asking net rents remained stable. Subletting declined in most cities, with tenants less willing to give up space as the market tightens and development has subsided to near-zero levels.

“If you didn't renew your lease through the past three or four years, you're probably now trying to figure out how to get back into the market,” Colliers president of brokerage, valuation and advisory services Daniel Holmes told RENX. 

“If you reduced your square footage because you didn't have everybody coming in three or four days a week, you're probably figuring out what your new strategy is going to be. So it's going to continue to have a positive absorption effect on our office market across the country.”

Strong leasing for Toronto and AAA towers

Toronto, the country’s largest office market, recorded its highest absorption in more than eight years. Leasing in class-AAA towers drove much of that.

“It’s been remarkable to see the absorption that happened in those AAA towers,” said the Toronto-based Holmes. “It went from vacancy rates of 12 to 14 per cent three years ago back down to low single digits. That was largely driven by banks announcing their return-to-office strategies.”

Major occupiers — including RBC, CIBC, TD, Wealthsimple, Scotiabank, Stripe, Mastercard, Fidelity Investments, J.P. Morgan, Softchoice, GreenShield and Lyft — have solidified long-term office footprints and driven demand for premium space.

“As we speak in real time, banks are still gobbling up more space,” Holmes said.

There was more than 2.2 million square feet of Toronto office deal activity signed in the fourth quarter, including eight transactions exceeding 100,000 square feet, pushing 2025’s overall Greater Toronto Area leasing to its highest level in more than five years. 

The return of government employees to offices on more of a full-time basis, and the spin-off effect these bank and government mandates will have on the office policies of their clients, should further reduce vacancies this year.

Holmes believes the trickle-down leasing from trophy assets to class-A and -B office buildings is still in its early stages. Retailers, restaurants and parking garages near office buildings should also benefit as momentum continues to build.

Office sales transactions and development

“The best thing that has happened for our investment market, in terms of bid-ask, is the stabilization of interest rates,” Holmes said. “Whether interest rates go up or down another 25 basis points is material, but immaterial in terms of helping people understand where the market has now landed.”

Both buyers and sellers now roughly know where their financing is going to be and where their debt is coming from, which should increase office transaction velocity. Smaller office assets in the $5-million to $10-million range will trade the most because there are more of them, but there should be opportunities for larger deals.

There are no new major office developments planned across the country and, even if one were to be approved and ready to begin construction tomorrow, it would still take four to five years to be delivered.

Balanced industrial market

The market for industrial and logistics properties has softened after a record run, with rising vacancy rates and declining asking rents. Absorption remains strongly positive, and vacancy is below five per cent in most markets, though rent growth has flattened after robust increases for almost a decade. 

After dropping to around one per cent earlier in the decade, the national vacancy rate for industrial properties was 3.8 per cent and the availability rate was 5.3 per cent in Q4. That’s still much lower than in the United States and considered balanced.

“I think it gave people good perspective of what a healthy industrial market actually looks like,” Holmes said. “Tenants should have choices and be able to move around, and landlords can do different things with vacancies in terms of preparing their properties for the next tenant.” 

Holmes believes the industrial vacancy rate should remain stable throughout 2026.

While industrial development hasn’t declined as sharply as office, it remains well below the levels of two to five years ago and speculative construction has slowed considerably.