Canada: Mid-Year Outlook
Canada’s commercial real estate market is navigating 2025 with a mix of resilience and strategic recalibration. To establish a deeper understanding of real estate sentiment as it stands halfway through the year, we surveyed over 150 Avison Young professionals across Canada. What we’ve found is that across major urban centres, the commercial real estate sector is adapting to new realities.
The first half of the year brought a wave of uncertainty, driven by political shifts and macroeconomic pressures. However, as we move into the second half, there’s a growing sense of momentum and opportunity across the country.
Source: Avison Young Market Intelligence
Investors and occupiers alike are recalibrating their strategies in response to shifting demand patterns, supply chain adjustments, and changing workplace behaviours.
Asking rents
Retail is experiencing a surprising resurgence, as consumer confidence stabilizes and leasing activity picks up. The office—seen as the most vulnerable in recent years—is showing signs of transformation, with adaptive reuse and flight-to-quality trends continuing to have traction. Meanwhile, the multi-residential sector continues to be buoyed by demographic trends and sustained demand.
While industrial retains many strengths, over half of our experts anticipate some slight loss due to tariff negotiations, while others expect stability, varying by market. This is notably different when compared to our U.S. expert perspectives answering the same question.
Canada respondents
U.S. respondents
Avison Young’s project management professionals agree that construction activity across Canada will remain stable or increase in the second half of the year. The industrial sector is expected to be of most interest, followed by corporate office, and special purpose (such as last mile distribution centres, data centres). Rising costs and uncertainty about tariffs could be the main reason developers hit the pause button, with overall risk and feasibility also impacting forward progress.
According to Arlene Dedier, Principal, Managing Director & Canadian Leader, Project Management Services at Avison Young, “while tariffs are indeed a current geopolitical challenge, we anticipate that global trade agreements will be resolved, and, ideally, any construction challenges may be mitigated following these global resolutions. The question on everyone’s mind is how long it will take to resolve these tariff issues.”
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As we look ahead, the second half of 2025 is expected to bring more clarity and confidence. Investors are becoming more selective but also more active, particularly in markets offering value and long-term growth potential. With infrastructure projects advancing, policy environments evolving, and demographic trends continuing to drive demand, Canada’s commercial real estate market is poised for a dynamic and strategically important period of growth and adaptation.
Vancouver’s commercial real estate market is entering the second half of 2025 with renewed confidence and resilience. Despite ongoing global uncertainty and macroeconomic headwinds, the city is charting its own course, supported by strong fundamentals, a constrained supply environment, and a business culture that has embraced the return-to-office more fully than other Canadian markets.
The office sector is particularly robust. Tenants are not only active but are making leasing decisions well ahead of expirations, signaling long-term confidence. High-quality office assets are leasing quickly, and in some cases, rents are rising. With no significant new office developments in the pipeline and Vancouver’s geographic constraints limiting expansion, available inventory is tightening in class A and trophy assets. This is setting the stage for a landlord-favorable market within these asset classes.
Interestingly, this resurgence is occurring even without a full rebound from the tech sector, which was once a major driver of office demand. Should tech leasing and venture capital activity return, vacancy rates could quickly compress to pre-pandemic lows. Developers are watching closely, with some projects requiring rents in the $70-per-square-foot range to justify construction. While speculative development remains rare, pre-leasing interest could begin to stir.
The industrial market presents a more mixed picture. Larger tenants—those seeking 100,000 square feet or more—are active and planning ahead. However, smaller and mid-sized users remain cautious, influenced by tariff concerns and broader economic instability. Still, the sector remains fundamentally strong, with rents elevated compared to historical norms and overall market health intact.
Investment activity is gradually picking up. Grocery-anchored retail centres are performing exceptionally well and attracting investor interest. Office investment is also gaining traction, with multiple bids on select assets. While land and multi-residential have faced challenges, there’s growing optimism that these sectors will rebound as immigration stabilizes and housing demand resurfaces.
Vancouver’s unique business culture—dominated by private firms and smaller employers—has supported a faster return-to-office, reinforcing downtown vibrancy. With constrained supply, strong tenant activity, and rising investor confidence, Vancouver is well-positioned for continued growth through the rest of 2025.
Edmonton’s commercial real estate market is undergoing a significant transformation in 2025, fueled by record-breaking population growth and a surge in investor interest. As Alberta continues to lead the country in interprovincial migration, Edmonton is seeing an influx of new residents, which is driving demand across multiple asset classes—particularly in housing and industrial real estate.
Residential developers are actively acquiring land to meet future housing needs, while industrial developers are racing to address a shortage of available space. The industrial sector, especially small-bay warehouse properties, remains a cornerstone of Edmonton’s appeal. Investors—from local family offices to national institutions—are targeting industrial assets, drawn by the city’s affordability and long-term growth potential.
Multi-residential properties are also in high demand, commanding the lowest cap rates among asset classes. Despite elevated valuations, investor confidence remains strong, supported by robust rental demand and limited new supply. Population growth continues to underpin this sector’s resilience, making it a top choice for capital deployment.
Retail in Edmonton has outperformed expectations. Contrary to earlier predictions of a post-pandemic slowdown, the sector has remained stable and is even expanding. Rental growth is steady, and new developments are underway, reinforcing retail’s role as a dependable performer in the city’s commercial landscape.
The office market, however, remains a challenge. Vacancy rates are high—hovering around 18 – 19%—with limited absorption and no major conversions to residential use. Unlike Calgary, Edmonton lacks government incentives to support adaptive reuse, leaving a surplus of underutilized office space. While this creates opportunities for tenants to negotiate favorable lease terms, it continues to pose difficulties for landlords and investors.
A bright spot for downtown Edmonton is the growing education sector. With two major post-secondary institutions and a student population projected to grow significantly by 2030, the downtown core is becoming more vibrant, potentially supporting future residential and retail development.
With rising interest from investors outside Alberta and an upcoming municipal election expected to bring greater clarity, Edmonton is well-positioned for a stronger second half of 2025.
Calgary’s commercial real estate market is entering the second half of 2025 with renewed energy after a cautious start to the year. The early months were marked by political uncertainty tied to the Federal election and a noticeable slowdown in activity from February through April. However, as confidence returns, deal flow is picking up across asset classes, signaling a more optimistic outlook for the remainder of the year.
Population growth remains a key driver of Calgary’s momentum. The city continues to attract residents from across Canada, drawn by its affordability and economic opportunities. This demographic shift is fueling demand in both the multi-residential and industrial sectors. Although multi-residential rental rates surged in recent years, the pace of growth has moderated slightly in early 2025 due to a wave of new units entering the market. Still, investor interest remains strong, with confidence in the sector’s long-term fundamentals as new supply is gradually absorbed.
Calgary’s industrial market is also holding steady. Vacancy rates are balanced, offering flexibility for tenants while maintaining landlord confidence. Although construction activity slowed toward the end of 2024, the sector’s fundamentals remain solid, and investor appetite continues.
Retail, once overshadowed by other asset classes, is experiencing a resurgence. As the post-pandemic recovery matures, both national and local retailers are performing well, and leasing activity is on the rise. Investors and lenders are once again recognizing the value of retail assets in Calgary’s evolving landscape.
The office sector, while still facing challenges, is undergoing a transformation. Calgary is leading the country in office-to-residential conversions, supported by a proactive municipal program that incentivizes adaptive reuse. This initiative has attracted significant developer interest, with several projects already completed and more underway. Though the economics of conversion remain complex, public-private collaboration is making these projects viable.
Calgary’s business-friendly environment and streamlined permitting processes are attracting capital from across Canada. With a relatively low cost of entry and room for rental growth, the city is becoming an increasingly attractive destination for investors seeking yield and long-term opportunity.
The office market, particularly downtown, is showing tentative signs of recovery. As major employers refine their return-to-office strategies, longer-term leasing commitments are beginning to re-emerge. The flight-to-quality remains a dominant theme, with tenants prioritizing high-end, amenity-rich buildings to attract and retain talent. However, rising construction and tenant improvement costs are making relocations more expensive, even as companies seek to enhance their workplace environments. Tenants are continuing to push landlord for higher leasehold improvement packages in exchange for longer lease terms.
Despite these pressures, there’s a growing willingness among tenants to commit to longer leases. With hybrid work models becoming more defined, companies are better able to estimate their space needs and make confident real estate decisions.
On the investment front, Toronto is seeing a rise in opportunistic buying, particularly in the mid-market segment. While large institutional deals have slowed due to interest rate volatility, experienced investors are stepping in to acquire quality assets at discounted prices. Receivership sales are becoming more common, creating opportunities for those with capital and a long-term view.
Joe Almeida
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- Principal, Managing Director Ontario, Broker of Record, Avison Young Commercial Real Estate Services, LP, Brokerage
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- Corporate Executive
Toronto’s commercial real estate market in 2025 is navigating a period of recalibration, marked by caution but also signs of strategic adaptation. The first half of the year was shaped by uncertainty, which influenced both leasing behaviour and investment decisions. While deals are still happening, many are being restructured—leasing terms are shorter, yield expectations are more conservative, and stakeholders are proceeding with greater care.
In the industrial sector, activity remains present but more measured. Suburban leasing continues, though tenants are increasingly hesitant to commit to long-term agreements without built-in flexibility. A key challenge is the disconnect between landlords’ expectations—often based on pre-slowdown projections—and current market realities. This is especially evident in newer, larger developments, where achieving target rents has become more difficult, particularly without committed tenants in place.
In the office sector, the suburban market is seeing selective activity driven by desire to be in premium office buildings. Tenants are focused on reducing overhead, while also improving workplace quality. This has opened up opportunities for landlords willing to invest in space upgrades and flexible deal structures.
As the second half of 2025 unfolds, Toronto’s market is expected to gain more clarity. While uncertainty remains, the city’s adaptability and depth of capital suggest that strategic players will continue to find ways to move forward.
Southwestern Ontario’s commercial real estate market is progressing through 2025 with a steady, measured pace. While it may not command the same national spotlight as Toronto or Vancouver, the region is quietly demonstrating resilience and adaptability—particularly in the retail and investment sectors. The first half of the year reflected broader economic caution, but underlying fundamentals remain sound.
Retail activity presents a nuanced picture. Investment sales have dipped slightly, likely due to shifting investor priorities and macroeconomic uncertainty. However, retail leasing has picked up modestly, signaling that both local businesses and national chains still see value in expanding or repositioning within the region. This divergence between investment and leasing activity suggests a market that remains fundamentally healthy, even as capital deployment becomes more selective.
The suburban office market is also showing signs of life. Leasing activity has increased slightly, supported by landlords offering attractive inducements to secure tenants. While the region doesn’t have the same volume of office inventory as major urban centres, tenants are still seeking value and flexibility. Landlords are responding with competitive terms, and the “flight-to-quality” trend continues to influence leasing decisions.
One of the more notable developments in the region is the rise in receivership sales. As some property owners face financial pressure, assets are coming to market at discounted prices. This has created opportunities for opportunistic buyers—particularly those with experience navigating cyclical downturns. Much like the post-2009 recovery, savvy investors are stepping in to acquire quality assets at favorable valuations.
Capital markets activity remains steady, especially in the mid-market segment. While large institutional deals are limited due to interest rate volatility, private investors and local buyers are keeping transaction volumes healthy. Suburban office and retail properties are the primary focus, offering stable cash flows and manageable risk profiles.
Overall, Southwestern Ontario is demonstrating quiet strength. Despite national and global uncertainties, the region’s fundamentals are intact. As 2025 progresses, it is likely to continue attracting investors and occupiers seeking value, stability, and long-term opportunity outside Canada’s largest urban centres.
Ottawa’s commercial real estate market is moving through 2025 with steady momentum and a few unique dynamics that set it apart from other Canadian cities. The first half of the year has been defined by cautious optimism, with activity levels holding firm and a surprising uptick in investment transactions, particularly in the mid-market segment.
The office sector continues to face headwinds, largely due to the slow return-to-office policies among federal government departments. While private sector tenants are showing more commitment to long-term leases, the public sector’s delayed response has kept overall absorption modest. However, a recent change in federal leadership is expected to bring renewed infrastructure investment and a stronger focus on downtown revitalization—factors that could help boost office demand in the months ahead.
Ottawa’s industrial market, though smaller in scale compared to other major cities, remains stable and attractive. Composed mainly of small and mid-bay properties, the sector is not experiencing the same supply-demand imbalances seen elsewhere. Leasing activity is consistent, and the lack of speculative development has helped maintain equilibrium. For investors seeking predictable returns, Ottawa’s industrial assets offer a compelling value proposition.
Retail is also performing well, supported by evolving consumer habits and a shift in tenant mix. New and diverse retailers are entering the market, contributing to a healthy leasing environment. There’s no significant oversupply, and retail continues to benefit from steady consumer demand and a resilient local economy.
Perhaps the most notable trend in Ottawa is the strength of its investment market. Transaction volumes are higher than expected, especially in suburban office and retail properties. Investors are drawn to the city’s stable fundamentals, manageable risk profile, and long-term growth potential. This activity is particularly striking given the broader economic uncertainty, suggesting growing confidence in Ottawa’s resilience.
With a stable government-driven economy, manageable supply levels, and a supportive policy outlook, Ottawa is well-positioned to maintain its steady performance through the second half of 2025.
Joe Almeida
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- Principal, Managing Director Ontario, Broker of Record, Avison Young Commercial Real Estate Services, LP, Brokerage
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- Corporate Executive
Montreal’s commercial real estate market is moving through 2025 with cautious optimism, shaped by a mix of global uncertainty and local infrastructure developments. The first half of the year was marked by hesitation, largely due to tariff threats and broader geopolitical instability. However, the second half is showing signs of renewed activity, particularly in the office and industrial sectors.
Office leasing has been encouraging, with companies reassessing their space needs as they bring employees back to the workplace. Some firms that downsized during the pandemic are now expanding or reconfiguring their offices to support hybrid work models. The “flight-to-quality” trend remains strong, with newer, well-located buildings—both downtown and in the suburbs—leasing more quickly than older assets. The best class A buildings are back to single-digit vacancy rates, while many older C and B class are slated for redevelopment or repurposing.
A major catalyst for downtown revitalization is the upcoming launch of the next phase of Montreal’s new light rail system, Réseau Express Métropolitain (REM), expected by year-end. This infrastructure project is set to improve access to the central business district, reduce commute times, and enhance the appeal of downtown office space.
Despite these positive signs, capital markets activity in the office sector remains subdued. Institutional investors are largely on the sidelines, leaving most transactions to private buyers. The presence of “ghost vacancy”—space technically listed as office but slated for conversion—continues to distort vacancy data and contribute to a perception of oversupply.
In the industrial sector, early-year momentum slowed mid-year due to tariff-related uncertainty. Some companies paused expansion plans, but worst-case scenarios have not materialized. Larger users are cautiously resuming activity, and the market appears to be stabilizing.
Montreal’s investment landscape is shifting, with private and local investors stepping in where institutional capital has pulled back. Retail remains steady, supported by resilient consumer behaviour and ongoing leasing activity. A growing emphasis on local sourcing—driven by supply chain concerns and shifting values—is also shaping business decisions.
The bright spot is the multi-residential sector, which is buzzing with investment activity. The Montreal market has depth and rental rates still have upside.
Overall, Montreal is adapting to a new normal. With infrastructure improvements on the horizon and a more agile investment environment, the city is positioned to navigate the rest of 2025 with measured confidence.
Patrick Laurin
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- Principal, Managing Director, Québec
- Real Estate Broker Certified AEO
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- Corporate Executive
Conclusion
As we reflect on the beginning of the year and meet the halfway point of 2025, Canada’s commercial real estate market is demonstrating resilience and adaptability across its major urban centres. Each city faces its own unique set of challenges and opportunities, but several common themes are emerging.
Population growth continues to be a significant driver of demand, particularly in cities like Calgary and Edmonton, which are benefiting from interprovincial migration. The multi-residential and industrial sectors remain strong, supported by demographic trends and sustained demand. Retail is experiencing a surprising resurgence, with consumer confidence stabilizing and leasing activity picking up.
The office sector, while still facing challenges, is showing signs of transformation. Adaptive reuse and flight-to-quality trends are gaining traction, with cities like Calgary leading the way in office-to-residential conversions. Vancouver stands out for its unique market structure and cultural embrace of in-office work, which is fueling a faster-than-expected rebound in the office sector.
Investment activity is gradually picking up, with a growing emphasis on value and long-term growth potential. Cities like Toronto and Vancouver are seeing a rise in opportunistic buying, particularly in the mid-market segment. While large institutional deals have slowed due to interest rate volatility, experienced investors are stepping in to acquire quality assets at discounted prices. Ottawa and Montreal have seen sustained activity, with retail and multi-residential.
Overall, Canada’s commercial real estate market is poised for a dynamic and strategically important period of growth and adaptation. With infrastructure projects advancing, policy environments evolving, and demographic trends continuing to drive demand, the second half of 2025 is expected to bring more clarity and confidence to the market.
Questions? We'd love to hear from you.
Marie-France Benoit, MBA
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- Principal, Director Market Intelligence, Canada
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- Research
- Market Intelligence
