GTA Office Vacancy Falls as Premium Demand Drives 4.6M SF Absorption

Toronto office fundamentals improved through mid 2026, led by premium downtown buildings. Vacancy declined while investment volume surged, but older and suburban assets continue to face elevated availability and wider pricing spreads.

Toronto’s downtown office market continued its measured recovery through the second quarter of 2026. Overall downtown vacancy declined to 9.9 percent, while CBRE reported downtown vacancy at 13.1 percent across its broader inventory after a 40 basis point quarterly improvement. The market recorded more than 140,000 square feet of net absorption during the quarter and 4.6 million square feet over the preceding twelve months, an all time high. Trophy buildings performed materially better, with vacancy at 2.6 percent, confirming that tenant demand remains concentrated in the highest quality buildings with strong transit access and amenity packages.

The recovery remains sharply segmented by building quality and location. Downtown Class A availability in the Financial District was 9.6 percent, while Toronto’s overall office availability rate fell 200 basis points year over year to 15.7 percent. Non core markets absorbed more than 800,000 square feet over twelve months, reducing vacancy to 20.5 percent, but that level still leaves tenants with substantial leverage outside the core. Premium asking rents continued to rise, whereas sub premium buildings generally remain more competitive on occupancy cost and incentives because landlords are competing for a narrower pool of tenants.

Investment activity strengthened alongside leasing, although capital remained concentrated in institutional quality assets. GTA office investment volume reached nearly $1.2 billion in the second quarter, up 125 percent from a year earlier, with 113 Class A transactions representing approximately 3.4 million square feet compared with only 15 Class B transactions totaling about 271,500 square feet. Indicative 2026 pricing places downtown Class A office cap rates at 6.25 to 6.75 percent, downtown Class B at 6.75 to 7.5 percent, and suburban Class A at 7.5 to 8.5 percent. The development pipeline includes eight buildings totaling nearly 2.2 million square feet under construction, but only 23 percent remains available for lease, limiting near term speculative supply while reinforcing the market’s preference for high quality product.