Canada Office Figures Q4 2025

Executive Summary

• Annual net absorption was positive for a second year in a row. Totalling to 2.2 million sq. ft., six markets ended the year in positive territory and was led by Toronto, primarily downtown.
• The office market hit a turning point in 2025 ending the year with two quarters of vacancy rate improvement. Downtown vacancy declined across all segments in Q4, although most sharply among Class A product which currently sits at its lowest level in the last three years.
• Sublease space has continued to fall. In total, a cumulative 3.2 million sq. ft. came off the market in 2025, more than in any year since 2005. This decrease has pushed the total of sublet space to 11.8 million sq. ft., which is on par with 2017 levels.
• The national office construction pipeline reached a floor in 2025, with record low starts and completions. The pipeline of new supply is expected to remain constrained with no meaningful new supply deliveries on the horizon beyond 2026.
• Over 1.0 million sq. ft. of office product was removed from inventory in Q4 as landlords continue to strategically reposition assets. Since 2021, conversions and demolitions have helped reduce inventory by 2.2%.

Back-to-back years of positive net absorption

Annual net absorption totalled 2.2 million sq. ft. across Canada in 2025. This is the second consecutive year of positive net absorption for the office market.

On the whole, six markets ended the year in positive territory. This was led by Toronto with 2.7 million sq. ft of net absorption, primarily downtown, where recent deal activity has been propelled by transactions over 50,000 sq. ft.

Given the differing levels of absorption activity from the year, office market recovery is occurring at different stages across the country. Five markets reported under 100,000 sq. ft. of absorption, either positive or negative, suggesting stabilization is occurring in most places. 

Calgary and Ottawa reported the greatest market softening in 2025. Despite this negative net absorption, Calgary has seen their vacancy rate improve over 2024 from continued office-to-residential conversions.

Emphasis on best-in-class product pushes Class A vacancy to three-year low

Downtown vacancy declined across all segments in Q4. This is only the second time since 2020 where all product classes experienced national declines in the same quarter.

Class A properties have continued to outperform the other segments, recording declining vacancy in seven of 10 markets this quarter. This was led by Toronto (-160 bps) and Montreal (-90 bps). National downtown Class A vacancy is currently at its lowest level in the three years.

Trophy assets, the top-tier within Class A, have reported declining vacancy for four consecutive quarters. Excluding Calgary, all markets with product in this tier are reporting vacancy rates below 10.0%.

The prioritization of best-in-class product has long been emphasised. However, with continued vacancy declines and an increasingly competitive environment for premium space, demand is expected to soon spillover to the next-best spaces. This trend is already being noted in Montreal.

Momentum building downtown led by growing RTO expectations

The office market hit a turning point in 2025 ending the year with two quarters of vacancy rate improvement. National downtown vacancy declined by 50 bps for a second quarter; meanwhile a more gradual tightening has been taking place in the suburban market, down 30 bps in Q4.

Declines downtown have been led by Toronto (-120 bps). Spurred into action from rising return-to-office (RTO) expectations, demand is spreading across industry groups and becoming more broad-based, supporting continued positive momentum. Montreal also noted a -100 bps tightening downtown this quarter.

Continuing the trend in recent quarters, six cities reported declines in suburban vacancy, including Montreal (-80 bps), London (-70 bps) and Waterloo Region (-70 bps).

Led by Toronto and Montreal, sublets decrease to 2017 levels

Declining now for a 10th consecutive quarter, national sublease space lowered by a remarkable 1.0 million sq. ft. in Q4. In total, a cumulative 3.2 million sq. ft. of sublets came off the market in 2025, more than in any year since 2005.

11.4 million sq. ft. of sublet space remains on the market, which is on par with 2017 levels.

Toronto and Montreal led the decrease this quarter while the majority of remaining markets effectively held stable on a square footage basis. On a year-over-year basis Waterloo Region also joins their ranks on a percentage basis.

Calgary was the only city to see sublease space increase, related to M&A activity in the energy sector. This is the third quarter in a row where the market has seen sublets rise.

At this stage in the market cycle, we are seeing a higher frequency of space being reclaimed by the sublessor as well as listings converting to direct space following in-place lease expiries.

Office pipeline hovering at market low

The national office construction pipeline reached a floor in 2025, hovering around the 3.0 million sq. ft. mark before ending the year at 2.8 million sq. ft. 

Overall, the total national pipeline is at present 69.4% pre-leased with all but one market reporting pre-leasing levels exceeding 20%.

CIBC Square II remains as the only significant project in development. Finishing touches are being done at this fully pre-leased property and is now due for delivery in early 2026.

Outside of Toronto, no meaningful product is being built downtown. The focus instead is on the suburbs and at very conservative levels with no more than three projects underway in each city.

Starts and deliveries reach new lows in 2025

Two projects commenced construction in the last six months of 2025 totalling 83,000 sq. ft. in Halifax and Winnipeg. This is a new annual low for the country with only small-scale suburban projects kicking off in recent years.

In total, 671,000 sq. ft. of new supply was completed over 2025 and is also one of the lowest annual totals in over 25 years. Just over half of this inventory was delivered in Vancouver.

Despite fewer deliveries, much of the new supply completed this year remains vacant and has one of the lowest levels of pre-leasing upon delivery in a given year.

Due to limited starts, the pipeline of new supply is expected to remain constrained. With no meaningful new supply deliveries on the horizon beyond 2026, demand is expected to trickle down to the next-best product tiers.

Conversion activity remains strong to close out 2025

Q4 2025 saw eight new conversion projects remove over 1.0 million sq. ft. of office product from inventory as landlords continue to strategically reposition dated assets.

Building off last quarter’s momentum, H2 2025 concluded with over 2.0 million sq. ft. of total space removed for conversion, the largest sum of any half year on record.

Accounting for two of the seven new conversion projects this quarter, Calgary continues to lead the major Canadian markets in total space converted and accounts for almost half of all office product removed from inventory.

Office-to-residential projects remain the most common, with all seven conversions this quarter destined for residential use.

Since 2021, conversion projects have removed a cumulative 7.8 million sq. ft. of former office space. An additional 2.6 million sq. ft. has been demolished over the same period. Together, they have helped reduce inventory by 2.2%.