The Canadian office market is looking like it has rounded the corner from recovery to growth, according to CBRE’s Q3 2026 Canada Office Figures report and managing director of research Marc Meehan.

“We've seen our fifth consecutive quarter of positive net absorption and nine of 11 markets were positive,” Meehan told RENX. “On average, you might see five or six of 11 be positive, but now we're seeing it's nearly unanimous.”

There was two million square feet of net absorption of office space across Canada in the quarter. Toronto, Calgary and Montreal all logged net absorption of more than 500,000 square feet while strong leasing was also noted in Winnipeg.

“There are a range of head winds that are impacting Canada and the real estate market globally, including AI, inflation, rising bond yields and financing costs,” said Meehan.

“(But) as office resilience and its importance, and the vibrancy of the office space, becomes better recognized by occupiers and tenants, that will drive demand. So there are lots of tail winds that are supporting demand at a time when there's no new supply, so it's pretty difficult to be pessimistic on the office market.”

Calgary shines while Vancouver falters

Eight markets reported declining downtown vacancy in the third quarter, led by Toronto (down by 90 basis points), Calgary (down by 80), Ottawa (down by 80) and Halifax (down by 70).

“Calgary surpassed our expectations for how well it performed,” said Meehan. “On the flip side of that coin, the Vancouver performance in Q3 was somewhat softer than we would have expected.”

Some of the weakness in Vancouver was attributable to two large downtown blocks of office space being officially vacated due to consolidation within the technology sector. Meehan said the fundamentals are in place for improved performance in the coming year.

Downtown versus suburban office performance

The national vacancy rate for downtown office space in the third quarter was 17.3 per cent, while it was 15.8 per cent in the suburbs.

Positive momentum has continued in both downtowns and the suburbs, as vacancies in both declined by 50 basis points. This represents the largest quarterly decline for the suburbs since the first quarter of 2020, but that segment of the market has proven to be particularly stable over the last five years.

“Vacancy in the suburbs is trending downwards, but not as quickly as it is downtown,” said Meehan. “It's not unusual to see a block of 100,000 square feet taken overnight by a bank in succession over the course of a year, and that isn't something we see to the same extent in the suburbs.”

Building quality remains important

The spread in vacancy across product tiers among trophy and class-A buildings versus class-B and -C buildings is at historically high levels, highlighting that tenant preference for high-quality space have never been more prevalent.

Trophy vacancy is at a six-year low nationally, with Toronto and Montreal both reporting rates of three per cent and below. 

“When we're competing with remote work, it's really difficult to make the case for occupying -B and -C when there are trophy options available to that tenant,” Meehan explained. 

“From a corporate strategy lens, it lends itself much more favourably to achieving those corporate objectives, so the value proposition of -B and -C is a little bit more challenged today than it historically has been in prior cycles.”

However, it’s expected that the increasingly competitive environment for premium space will result in demand spilling over to the next best spaces.

“Within that -B and -C space, there are landlords that are differentiating their buildings against the competitor set by by investing in amenities,” said Meehan. 

“Longer term, what we’ll see is that as there's no new construction and as tenants grow and the occupier base grows, we’re going to run out of space and the trickle down effect will eventually make its way to -B and -C space.”

Subleasing is declining

National sublease space fell by 1.3 million square feet, the single largest quarterly decline since 2005. Sublet space has been reduced by a cumulative 8.7 million square feet, or 50.2 per cent, from its peak more than three years ago.

This reduction is being driven by a combination of lease expiries, transactions and tenants retaining some of the largest sublet blocks of space. 

“Come 2030 and 2031, we're forecasting vacancy in some markets to be in the mid- to low single digits, which is a really tough occupier market to be in to transact or grow in,” said Meehan. “So, if you have quality space, I understand why tenants that had chosen to put it on the sublet market have now decided to retain it.”

New development and conversions

No office project completions were noted in the third quarter. Full-year new supply is forecasted to reach 2.3 million square feet, well below the recent five-year average. 

New supply is expected to remain constrained, with no significant deliveries on the horizon beyond 2027. 

Meehan, however, thinks there could be an announcement for a large new office development in Toronto in the next year if major tenants are willing to sign leases for rents of at least $80 per square foot pre-construction.

He noted that trophy buildings in the city are currently leasing for an average of $66 per square foot and that number could reach the $80 and higher range by 2030.

Conversions have removed a cumulative 9.6 million square feet of office space from national inventory since 2021. Conversions and demolitions continue to chip away at office inventory, with seven projects noted in the third quarter across Toronto, London and Ottawa.

Meehan believes the conversion of office buildings to other uses will continue in Calgary, where the municipal government has incentivized it, and on a select basis in other cities where it can make financial sense. But with conversion costs being about 90 per cent of new construction, according to Meehan, it can be difficult to make the math work.