Office Market Ends 2025 on a Strong Note
In its November 2025 Labour Force Survey, Statistics Canada reported that Canadian employment levels rose for the third consecutive month, with an increase of 54,000 jobs. With little employment change from January to August, the cumulative increases in September, October and November 2025 have totaled 181,000. Following a 20-basis point (bps) decrease in the unemployment rate in October, the unemployment rate fell by 40 bps to 6.5% in November. Employment in sectors that are the largest users of office space has remained relatively flat in comparison to one-year-ago with minimal growth of 0.8%.
Overall office vacancy has declined steadily throughout 2025 and in Q4 2025 reached 16.2%—its lowest level since Q2 2023. Quarter-over-quarter (QOQ) improvement was primarily reflected in Class A assets, particularly within the Central Class A market as vacancy declined by a notable 110 bps from last quarter to 15.8% and marks a decrease in vacancy of 160 bps from one-year ago.
Overall vacancy continued to tighten across most major Canadian markets in Q4 2025, marking not only an improvement over the previous quarter but also a shift from year-end 2024 as vacancy rates either declined or had minimal QOQ increases. Toronto stood out as one of the strongest performers, recording significant vacancy compression nationwide in 2025. Its Central Class A segment was particularly impactful, driving the national overall improvement. With vacancy falling to 12.6% in Q4 2025—down from 16.5% a year earlier— Toronto demonstrated the most substantial year-over-year (YOY) recovery in the country.
Net absorption closed out 2025 on a high note, with Q4 2025 alone delivering 2.6 million square feet (msf) of occupancy gains. After incorporating historical revisions from earlier in the year, total annual absorption reached 4.6 msf— marking the strongest positive performance since 2018. Demand was concentrated in Class A and B assets, while Class C inventory continued to see vacancy outpace tenant activity. As with the broader vacancy trend, the Central Class A submarket was the clear standout, accounting for 2.9 msf of annual absorption, an impressive 74.0% of which occurred in the final quarter of the year.
