Downtown gains and suburban ownership trend reshape financing plays in early 2026
The Greater Toronto office market showed clear signs of life in early 2026, with availability and vacancy retreating from their post‑pandemic peaks and capital starting to return to the sector.
According to Avison Young’s Q1 2026 Greater Toronto office market report, overall availability fell to 17.6% and vacancy to 15.7%. That's the fifth straight quarterly drop as net absorption surpassed the annual total for every year since 2017.
Off-core districts carried new leasing momentum
Avison Young reported that as large blocks in centrally located class A and Trophy towers became scarce, “other areas outside of Downtown but still well served by public transit – such as the Midtown submarkets and the North Yonge corridor – offer abundant options, lower rental rates and, potentially, greater negotiating leverage for tenants,” the firm’s Q1 analysis said.
Downtown availability declined to 15.5%, with vacancy at 13.1%, driven largely by more than 1.6 million square feet of new leasing.
Early renewals also gained traction as tenants tried to lock in costs ahead of expected rent growth.
By renewing three to four years before expiry, occupiers “sought to secure their premises for the long term in the face of what is expected to be a competitive market for space in a few years’ time,” the report said.
That pattern created a pipeline of stable income for lenders underwriting longer‑term loans against best‑in‑class assets.
Users moved from tenants to owners
On the investment side, Avison Young pointed to “a recent trend of users taking the opportunity to own their space, particularly in suburban markets,” citing the sale of 1595 Clark Blvd. in Mississauga as an example.
That trend aligns with what commercial mortgage brokers across Canada describe as a renewed focus on high‑quality, income‑producing assets rather than pure yield plays.
“Opportunities were emerging for asset types that were slower to recover post‑pandemic,” Avison Young principal Matthew McWatters previously said.
Lower borrowing costs also underpinned the shift.
“It was always a good time to invest in real estate when financing or debt was cost effective relative to capitalization rates,” Avison Young’s Brennan Yadlowski said last year, noting that interest rates moved close to pre‑pandemic levels and that investors should expect continued access to debt capital.
For lenders, quality and recovery went hand in hand
Nationwide, CBRE reported that Toronto’s leasing rebound helped push Canada’s downtown office vacancy lower, with the city recording roughly 1.9 million square feet of net absorption in Q1 2026 and a downtown vacancy rate in the mid‑teens.
That momentum echoes Avison Young’s broader Canadian outlook, which found that 97% of its professionals expect stable or higher activity in 2026.
“Optimism is in the air, with a focus on recovery and growth among all sectors across the Canadian commercial landscape,” Mark Fieder, president of Avison Young Canada, said at the time.
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