Signs are good in certain sectors – but unsurprisingly, much will depend on what happens with tariffs
Canada’s commercial mortgage market has been through a bumpy few years, marked by high-profile challenges in the office sector and disruptions caused by wider turbulence in the national and global economies.
But there could be cause for cautious optimism looking ahead to 2026, with evidence growing that confidence is slowly returning to the office market as big companies and the public sector ramp up efforts to bring employees back to the workplace.
Banking giants have steadily phased out remote-working allowance this year while Ontario’s provincial government has been among the most prominent advocates for a return to fully in-person public sector work.
And an uptick in demand for office space – particularly in Toronto – suggests that the deep freeze that gripped the office market during the COVID-19 pandemic is gradually thawing, according to Keith Reading (pictured top), senior director, research at Morguard.
That’s not to say the office market will necessarily see improvement across the board in 2026. There’s still much higher demand for top-quality product, with less clamour for older B- and C-class units.
“What we would deem trophy towers – the cream of the crop with regard to office – has really performed quite well,” Reading told Canadian Mortgage Professional. “The vacancy, I’m hearing, in that segment of the market is in the 3% to 4% range. And there’s quite a bit of competition for the remaining vacancy.
“Now, that eventually has to trickle down into the rest of the Class A buildings, which is a much bigger inventory of buildings. So far, it’s really been the better buildings that have outperformed.”
Avison Young’s 2026 Canadian Outlook shows confidence returning to commercial real estate, with 97% of professionals expecting stable or stronger activity and 64% anticipating growth. https://t.co/TRDCZHLFvq
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 9, 2025
Multi-suite residential, industrial markets facing complex outlook
On the multi-suite residential front, the outlook is somewhat murkier – although Reading still expects a “balanced” market to prevail in 2026.
In previous years, the country’s biggest rental markets have seen extremely low vacancy rates, making it difficult for renters to find available units and creating a boon for investors who’ve seen rents soar.
But recent times have seen a significant decline in foreign students and international migrants coming to Canada because of slashed immigration targets, coinciding with a glut of new construction coming to market.
“That’s really impacted demand,” Reading said. “Demand for rental accommodation has slowed. And at the same time, you’ve got this record-high new construction. So vacancy rates have continued to rise. They’re still relatively healthy, but I think it’s a more balanced demand-supply [picture] that we’re looking at moving forward.
“In 2024, as an example, we had record high rents that continued to rise and then extremely strong demand with the record immigration that we were seeing. That has since settled down. But I think the long-term outlook generally for rental apartments is largely positive.”
The industrial side, meanwhile, also saw construction activity and completions near record highs before demand moderated – driven significantly by economic and tariff-driven uncertainty over the past 12 months.
Reading sees the industrial sector settling down “pretty quickly,” although for the commercial market as a whole, much will depend on how Canada’s trade dispute with the US plays out in the year ahead.
Tariffs remain a huge factor in Canada’s commercial outlook
The good news is that US president Donald Trump’s tariff war hasn’t had as ruinous an effect on Canada’s national economy as first feared. So far, the impact has been “relatively modest,” Reading highlighted, affecting mostly the automotive and manufacturing sectors.
2026 could prove a crucial year with plenty up for discussion on the trade front, including renegotiation of a pivotal trade agreement that’s kept many Canadian industries protected from tariffs.
“It’s had an impact, but it’s been very much industry-specific,” he said. “It hasn’t been broad. Hopefully that continues into 2026. But until we get some sort of renegotiation, renewal or extension of the CUSMA (Canada-US-Mexico Agreement), there’s still quite a bit of uncertainty out there.
“Until we get to some serious negotiations with the US administration, I’m reasonably optimistic going forward.”
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