Office leasing activity grew for the second year in a row in 2025, according to data from commercial real estate company CBRE.Fred Lum/The Globe and Mail
The rate of empty office space in Canada is continuing to drop but the recovery is uneven, with newer, high-quality buildings in cities seeing the biggest improvements while older offices still have high vacancy levels.
Office leasing activity grew for the second year in a row in 2025, with annual net absorption, a measure of office leasing activity, totalling 2.2 million square feet of space countrywide, according to data from commercial real estate company CBRE analyzing the fourth quarter of 2025. Toronto accounted for a large part of the net absorption driven mostly by large downtown leases.
“At a time when there is high economic uncertainty for Canada with respect to tariffs … having office tenancies grow is a really positive sign for the office market,” said CBRE Canada research managing director Marc Meehan in an interview. But “that recovery is very imbalanced,” he said, with other smaller markets, such as Ottawa, not seeing as much improvement.
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Growing expectations about return-to-office mandates are also building momentum in downtown offices. Major companies across Canada, such as Toronto-Dominion Bank and Rogers Communications, required employees to return to the office four to five days a week in 2025.
Strong gains were concentrated in Class A buildings, which are higher-quality offices with better locations and amenities.
Vacancy in Class A space declined in seven of 10 major downtown markets in the fourth quarter, led by Toronto and Montreal. National downtown Class A vacancy now sits at 15.4 per cent, its lowest level in three years, while vacancy in “trophy buildings,” which are considered top tier, has fallen for four consecutive quarters and sits at 10.4 per cent, and at 3 per cent in Toronto.
Mr. Meehan said the pandemic emphasized the need for offices that are appealing to employees. “We’ve seen hyperfocus on trophy and Class A,” he said.
He said that he expects Class A occupancy to continue improving as the supply for new trophy buildings slows, and tenant demand spills over to the next tier of assets.
Conditions are different for older office buildings. Vacancy rates for Class B and C offices downtown remain elevated at 25.4 per cent in the last quarter of 2025, up slightly from 25.3 during the same quarter a year prior, highlighting the growing divide between high-quality space and the rest of the market.
Scott Figler, director of Canada research for real estate services company JLL, also tracks office vacancies, though he uses a slightly different methodology from CBRE, measuring occupancy rather than listings. He found trophy buildings had 12-per-cent vacancy countrywide as of December, 2025. Class A and B buildings were both at 19-per-cent vacancy, but while the rate for Class A is declining, it is going up for Class B.
“Companies are very focused on getting their workers into the office. If they’re going to sign a new lease, they want to make sure the investment in that space has a payoff,” Mr. Figler said.
Much of the improvement in overall occupancy has come not from stronger demand for older buildings, but from the removal of older offices from inventory through conversions, he said.
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Developers and landlords have increasingly turned to office-to-residential projects, particularly in Calgary, which accounts for nearly half of all office space converted countrywide since 2021, according to CBRE.
In the fourth quarter alone, eight conversion projects removed more than one million square feet of office space from the market across the country.
Another sign of stabilization is the sharp decline in sublet space, often a signal of tenant distress. Companies pulled 3.2 million square feet of sublet space off the market in 2025, more than in any year since 2005, according to CBRE. The amount of office space available for sublease now stands at 11.4 million square feet, roughly in line with 2017 levels, when office demand was considered strong.
Limited new construction has also helped ease vacancy pressure. Only 2.8 million square feet of office space are currently under construction across Canada, and nearly 70 per cent of that is pre-leased, leaving little new supply set to come online.