Office sector poised for ‘year of rebound’ in 2026 as firms expand, end remote work

A commercial retail space is advertised for lease along King Street West in Toronto on Tuesday, March 9, 2021. THE CANADIAN PRESS/Tijana Martin

The drive to the office may not feel as swift as it did a couple years ago, nor is the train as comfortable, as you're forced to lean against a stranger during your standing-room-only commute.

For some companies, work-from-home and hybrid models persist more than five years after the start of the COVID-19 pandemic, providing employees the flexibility they've become accustomed to.

But in other industries, employers are increasingly calling their staff back to the office. The shift has been a welcome development for Canada's office real estate sector after years of rising vacancies.

Commercial real estate firms say the return-to-office trend seems poised to ramp up into the new year, with landlords pivoting to accommodate the evolving needs of renters and their employees.

There's a growing desire among big firms to "have their people back in the office for a meaningful amount of time," whether that means three or five days per week of in-person work, said Avison Young Canada president Mark Fieder.

"This is definitely translating into major take up or what we call absorption ... of office space," said Fieder.

"There's such a flurry of activity at the moment that it's like we're scrambling to measure it."

Avison Young's latest Canadian office market report showed the total availability rate across the country was 18.7 per cent in the third quarter, down from 19.6 per cent in the same quarter last year.

Fieder said there's another key factor at play in certain sectors where return-to-office mandates have become prevalent. He pointed to the big banks concentrated in downtown Toronto, which have expanded their head counts over the past five years.

With larger teams than before the rise of work-from-home, there's been a scramble to find more space to fit everyone in the office, Fieder said.

"They never had seats for those people prior to the pandemic, so now they have to accommodate them," he said.

"The demand for space is catching up."

In Ontario, employment for office-using industries has grown around one-quarter since February 2020, according to Statistics Canada data. It's a metric the commercial real estate firm is tracking closely, noting that 2025 has been the strongest year for office space absorption in Toronto since the start of the pandemic, and other large cities in Canada are showing similar trends.

Fieder added vacancy rates have declined most for the highest-quality inventory in major cities. As of the third quarter, the best 12 buildings in downtown Toronto had vacancy below two per cent, while the sublease market has seen a sharp contraction.

"Occupiers know that when they're leasing the best space, it's easier to get their people back into the office," he said.

But it's not enough to offer newly constructed or renovated space, said Brendan Sullivan, CBRE's senior vice-president of office leasing.

He said firms are prioritizing the "flight to experience" as they move employees back to a centralized work space. That means offering tenants perks in the form of building amenities — fitness centres, lounges or food — while also ensuring transit accessibility.

"There has to be a level of individual experience that's being delivered to the occupant, the tenant, in order to satisfy the demands of ... the individual workers and employees of that organization," Sullivan said, calling it "a generational shift in how businesses and individuals will use office buildings."

"It's not just enough to tell people to come into the office; there has to be a reason why."

Sullivan said many businesses took a wait-and-see approach to start 2025, especially amid geopolitical challenges and other sources of economic uncertainty, leading to slower commercial real estate activity than hoped in the first half of the year.

Since then, he said CBRE has tracked some of its largest transactions of the past half-decade over the second half of the year and he expects momentum to continue into 2026.

Another reason so much space is being scooped up is that businesses are planning for future growth while it's still available, said Scott Figler, director of research at real estate firm JLL.

He said only a handful of new builds are currently under construction across Canada, relative to the wave of fresh space that was delivered coming out of the pandemic.

Whereas companies tended to base their decisions about how much office space they needed over the past five years on their mix of remote, hybrid and in-office employees, they're now planning based on what their head count could look like a decade down the road.

"They see that vacancy is going to fall, so I think there's a sense of like, 'OK, if we want to get the best rate we're going to get, we should do that now because the deals aren't going to last forever,'" he said.

With little new office development expected to come online, that means demand could shift to older inventory in the new year. Companies in other growing sectors, such as tech, are expected to drive that sustained demand.

"There's almost nothing new under construction. So now if you're trying to grow, you have to grow into an already existing second-generation space," said Figler.

Sullivan said CBRE is projecting 2026 to be a "year of rebound" for its office segment, especially in other markets such as Montreal, Vancouver and Calgary.

"Businesses are starting to understand that going to that four to five days requires a greater amount of office space," he said.

"This year, we've seen major bank growth in the office sector, underpinned by technology and professional services. We continue to see increasing demand for office space throughout our markets ... relative to where we were at the beginning of the year. So I think that's a sign of where things will go in 2026."

But despite the pendulum swing back toward in-office mandates, many companies are also recognizing that home arrangements are here to stay in some form, said Figler.

He said it's unlikely that 2019 norms will make a full-fledged comeback in the near-term, especially as economic concerns persist.

"I don't think we're done with hybrid," said Figler. "We're also operating in an economy where companies are trying to be very conscious of their spend.

"There's definitely a push to get more people back in the office. That's undeniable and it's more pronounced in certain segments like finance. But I don't think we're going to see companies go fully in office any time soon."

This report by The Canadian Press was first published Dec. 7, 2025.

Sammy Hudes, The Canadian Press