Canadian Commercial Real Estate Outlook, 2026

One year after the international trade order was upended by the introduction of U.S. tariffs, a clearer picture is emerging of how this is impacting Canada’s economy and commercial real estate markets.

Though tariffs stifled a budding economic recovery that began to take shape in late 2024, they did not induce a recession as many head feared. Provinces that are most tied to extractive industries performed better, while provinces with a larger manufacturing base such as Ontario and Québec, have lagged.

Employment growth slowed across the country but Edmonton stood out as the top growth market in 2025, benefitting from interprovincial immigration and a diversifying economy. Ottawa – not Waterloo Region as we had anticipated – saw the most pressure on job growth with the new Carney government shedding significant public sector headcount.  

Commercial real estate investment volumes finished 2025 at $46.2b, down 5% versus 2024 and down 29% against the 2022 peak.

Notably, investment volumes accelerated in sectors where leasing fundamentals have improved – office, retail, seniors housing, and data centres. With the industrial and multifamily markets also likely to come more into balance in 2026, this makes us cautiously optimistic that we will see a recovery for capital markets across the board in the year ahead.

A defining storyline of 2025 was the return of institutional capital. Pension funds, REITs, private equity funds, and foreign investors deployed nearly $15b in capital in Canada. This is equivalent to about a third of the overall investment market, their largest share of acquisitions since 2021. Since these groups generally encompass the largest and most experienced investment funds in the market, this resurgence underscores a consensus that Canada is entering a new capital cycle characterized by stronger market fundamentals and improving returns.  

After years of rising vacancy and falling rents, the Canadian office market is finally recovering. Leasing activity reached its highest annual total since 2018. Net absorption – the change in occupied area - was slightly negative on an annual basis but has been positive for the last three quarters.  The national availability rate has been declining for the past six quarters.  With just 3m s.f. to be delivered nationally between 2027-2029, we are likely to see falling vacancy for some time. 

The property sector that would seemingly face the most headwinds in 2025 was industrial. Instead, it outperformed expectations. After 12 consecutive quarters of increases, industrial vacancy plateaued in Q4 2025 at 5.2%, potentially signifying an inflection point. Though much uncertainty lies ahead with respect to international trade - and while certain markets with heightened exposure to U.S. trade continue to see rising vacancy - on an aggregate basis vacancy should begin to fall and rents should rise in 2026 as new development continues to slow. 

With manufacturing in decline throughout the year, consumers kept the Canadian economy above water. Through November, retail spending was up 4.5% relative to 2024, and transportation and warehousing of goods remains a bright spot within the economy.  However, consumers are growing more cost-conscious. This is especially true with respect to food, where inflation is now running at 7.3%, well above the headline rate. Discount chains and thrift stores are opening stores at a rapid pace, while the closure of Hudson’s Bay stores across Canada left behind a void, both physical and symbolic. 

According to CMHC, 2025 was the first year in which there were more purpose-built rental units under construction than condos or single-family homes. The private and public sectors are responding to the housing shortage, arguably the greatest challenge facing Canada. Booming supply - along with plateauing population growth across the country - is helping to stabilize apartment rents across Canada. According to Rentals.ca, every major city with the exception of Edmonton has seen asking rents fall over the past year. 

Multifamily investment sales reached $10.2b for the year - a 13.6% annual increase - halting what was a four-year slide in transaction volume. Again, we draw attention to Edmonton, where sale volume reached a record level, more than doubling the previous five-year average.