Stability in the Office Market to Begin 2026
In its February 2026 LabourForce Survey, Statistics Canada reported that Canadian employment levels dropped for the second consecutive month, with a decline of 84,000 jobs, for a 2026 year-to-date total job loss of 109,000. The unemployment rate climbed by 20 basis points (bps) from last month to 6.7%, due to a combination of falling employment levels and more people searching for work. While employment in sectors that are the largest users of office space did contract for the fifth straight month, it is virtually unchanged from the employment levels witnessed one-year-ago.
After a year of steady improvement, overall office vacancy held at 16.2% in Q1 2026. Stability was equally evident in the Central Class A segment where vacancy remained flat at 15.8%. The most notable quarter-over-quarter (QOQ) movement was in the Suburban Class A market where the vacancy rate declined 70 bps from last quarter to 15.7%; its lowest point in three years. This performance continues to highlight a bifurcated market, as the combined Class B and C vacancy rate rose QOQ, albeit slightly, within both the Central and Suburban markets to 20.8% and 12.4%, respectively. Most Canadian markets witnessed similar conditions in Q1 2026 as overall vacancy in those cities had small fluctuations from last quarter, with minor increases/decreases between 20-40 bps.
Following three consecutive quarters of strong momentum, absorption levels did turn negative in Q1 2026 at 554k square feet (sf). Importantly, this pullback was not uniform. Central Class A assets still posted positive absorption of 56k sf, while Suburban Class A outperformed with 203k sf of gains. The overall decline in absorption was driven entirely by Class B and C properties, which combined recorded negative 814k sf of absorption this quarter. This pattern reinforces a consistent theme in that occupiers continue to upgrade and consolidate into high-quality space, while demand remains challenged for aging, poorly located, or uncompetitive assets From an individual market perspective, overall absorption levels were mixed as Vancouver and Toronto posted overall positive absorption this quarter, while Montreal, Calgary and Ottawa were in the negative. However, when looking at Class A assets only, Montreal absorption turns positive with minimal negative absorption in Calgary.
