As Canada’s office real estate market shows signs of recovery, major tenants such as Canadian Tire Corp. are retrofitting existing space. As part of a $200-million project, the retailer and Oxford Properties will modernize the existing Canada Square towers at Yonge Street and Eglinton Avenue in Toronto.Supplied/Oxford Properties
Canada’s office real-estate market is showing signs of recovery as return-to-office mandates, falling interest rates and record-low construction drive demand.
Third-quarter 2025 data from real-estate firms such as CBRE, Colliers and Avison Young show downtown vacancy rates decreasing in most major markets for the first time since the pandemic. National net absorption is positive – meaning more space is being leased than vacated – and asking rents are holding steady.
But gains are highly uneven and concentrated in Class A to AAA offices – the market’s best-in-class buildings that are centrally-located with premier tenants, high rental rates and world-class amenities. National occupancy for older buildings in the suburbs is growing modestly in some cases, though it continues to fall in others.
Demand grows for Class A offices
Tenant preferences for prestigious Class AAA and A offices in prime locations that are centrally located with the latest desirable amenities and good transit access have never been more pronounced, says Molly Westbrook, executive vice-president and managing director of CBRE’s Canadian head office in Toronto.
In this year’s third quarter, the “flight to quality” has lowered Toronto’s downtown vacancy rate for Class AAA offices to 3.4 per cent, compared with an overall downtown Toronto vacancy rate of 16.6 per cent, she adds.
Downtown Toronto registered nearly 1.3-million square feet of net absorption, a positive sign that demand is rising and more space is being leased than vacated.
Ms. Westbrook says AAA offices are seeing multiple offers in “a very competitive market.”
In Vancouver, a report from commercial real-estate advisory Newmark says office leasing is on pace for its best showing in three years, thanks to Lululemon Athletica Inc.’s takeover of nearly 300,000 square feet at 725 Granville St. The property is being vacated by Microsoft Corp., which will occupy 400,000 square feet of the 33-storey Bentall 6 office tower that was recently completed in the city’s downtown.
Gaps in the office market
While office vacancy rates have fallen in most Canadian cities, the national average is still elevated at about 16.4 per cent – a stark jump from Canada’s record-low downtown vacancy rate of 2 per cent in 2019. The current percentage reflects the millions of square feet of unoccupied space among older buildings outside city cores, Altus Group data shows.
It’s an unusual dynamic, says Adam Jacobs, Colliers Canada’s research head. “There is a massive gap between the trophy office that’s in demand and practically full, and the rest of the market that’s grappling with higher vacancies.”
Ms. Westbrook says the flight to quality is partly owing to a need by employers to secure buy-in from staff who are being compelled to resume their daily commutes to workplaces. She adds that tenants such as Scotiabank, BMO, RBC and TD Bank, which are all requiring employees to be in the office at least four days a week, “want better spaces, shorter commutes, more amenities, more engagement and a lot more collaboration.”
Commercial real estate firm Avison Young moved into an upscale downtown Montreal space last year. The relocation was intended to satisfy employees, attract talent and grow the business, a company executive says.Supplied/David Boyer
Attracting workers back to office
Avison Young – a commercial real-estate firm with offices in major Canadian centres – moved into a more upscale Montreal downtown space on McGill College Avenue last year. The relocation was intended “to create an environment where employees would be happy and to help us attract talent and grow the business,” says Patrick Laurin, the firm’s Quebec managing director.
He says the office includes a gym, showers and breakout rooms in an open-concept building with easy access to public transit.
The property’s owner, Markham, Ont.-based property management firm Redbourne Group, was willing to invest to improve the building, and Mr. Laurin says Avison Young negotiated competitive financial terms, as well as a flexible long-term lease.
He says employee input helped shape the new office layout, with about half of the 100-member staff working at an assigned desk and the remainder using any available workstation.
Mr. Jacobs of Colliers says returning staff wanted an improved office experience that justifies the commute, the use of communal work areas, and shared desks. “People have changed their attitude about who needs to be in the office, and the employer maybe needs to offer a little bit more.”
He also says he expects demand for lower-tier office classes to go up as AAA space becomes less available. “We’re going to see a bit of equalization between the suburbs and downtown and even within downtown in the years from now.”
Office retrofits and repurposing
Major tenants, such as Canadian Tire Corp., have chosen to retrofit existing space.
In June, Canadian Tire and real estate company Oxford Properties announced a $200-million project to modernize the existing Canada Square office towers at Yonge Street and Eglinton Avenue in Toronto, with the retailer occupying most of the 680,000 square feet of office space under a 20-year lease.
“The retrofit approach results in a much faster project delivery,” says Andrew O’Neil, Oxford’s development vice-president.
Along with retrofits, some property owners are looking to repurpose unleased office space into medical offices, as health care demands mount among an aging population. It is an inexpensive exercise compared with full retrofits and residential conversions, unless surgical space is needed, says Jennifer Suess, senior vice-president and general counsel at RioCan REIT.
For example, Northwest Healthcare Properties REIT is developing clinical services in its office portfolio. The company’s CEO, Zachary Vaughan, says in an email that his firm “is well-positioned to acquire, convert and develop healthcare infrastructure to meet system needs.”
Repositioning vacant office space for medical uses relieves pressure on the health care system, Ms. Suess adds, “and can absolutely move the needle to increase occupancy.”
Editor’s note: A previous version of this article incorrectly stated that the Bentall 6 office tower is under construction in downtown Vancouver. Construction was recently completed.