Toronto Office Market: Q1 2026 Snapshot

Toronto's office market opened 2026 with the kind of numbers landlords have been waiting years to post, and tenants can't afford to ignore. According to CBRE Canada's latest figures, downtown vacancy dropped to 14.4% in the first quarter — down from 18.3% a year earlier, and a 120-basis-point decline from the previous quarter alone. This isn't a blip. It's the third consecutive quarter of strong net absorption, and it's starting to reshape how landlords negotiate and how tenants should be planning.

Vacancy Is Falling Faster in Toronto Than Almost Anywhere Else

Toronto's 14.4% downtown vacancy rate compares to an 18.2% national downtown average across Canada's major office markets, per CBRE. Toronto's quarterly decline of 120 basis points was among the sharpest of any large Canadian market, trailing only Edmonton's 250-basis-point drop. For tenants who've spent the last three years assuming they hold most of the leverage in a lease negotiation, that assumption is starting to erode — not overnight, but consistently, quarter after quarter.

Trophy Space Is Getting Scarce First

The clearest signal in the data isn't the headline vacancy number — it's what's happening at the top of the market. Vacancy in trophy office buildings, the highest tier within Class A, has dropped for five consecutive quarters and fell below 10% in Q1, for the first time since 2020.

If your renewal or relocation search is targeting a trophy building, plan for meaningfully less negotiating room than a year ago — free rent periods are shrinking and landlords are less willing to fund extensive tenant improvement allowances on premium floors. If your search isn't locked into trophy space, this is exactly the gap other tenants are increasingly falling into: solid Class A and B buildings, where vacancy — and negotiating leverage — both remain considerably higher.

Absorption Keeps Landing Above a Million Square Feet

Toronto posted 1.9 million square feet of net absorption in the first quarter, the third straight quarter above the 1-million-square-foot mark. CBRE's own research leadership has been explicit about what this means at the national level: the office recovery has so far been a Toronto story, with demand only now beginning to spread to other Canadian markets and beyond trophy assets. Toronto isn't riding a broader Canadian wave — it's leading one.

Supply Is Shrinking From the Other Direction, Too

Vacancy isn't just falling because demand is up. It's falling because supply is quietly shrinking. Office-to-residential conversions hit a record high to start 2026, with seven projects moving forward in Q1 that will remove close to 1.5 million square feet from competitive office inventory — the largest quarterly conversion volume on record. Combine that with rising absorption, and vacancy is being squeezed from both directions at once: more tenants competing for a shrinking pool of available space.

Investment Activity Tells a More Mixed Story

Not every metric is moving in the same direction. Overall investment activity across the Greater Toronto Area dipped slightly in the first quarter — down about 3% year-over-year, with $3.8 billion in total dollar volume transacted. Multifamily assets pulled a disproportionate share of that capital, posting a 232% year-over-year jump in dollar volume. Office remains the more cautious asset class for large-scale investment, even as leasing fundamentals improve — a reminder that landlords regaining pricing power on rent doesn't mean office buildings are trading like it yet.

Capital Is Reading the Leasing Signals, Even If Cautiously

Institutional buyers are starting to act on the leasing data, even if broader investment volume hasn't caught up. BGO's move to acquire a downtown Toronto office tower earlier this year — after sitting largely on the sidelines for years — is a bet that valuations have found their floor and that leasing momentum is structural, not seasonal. When capital starts moving back into a market ahead of the headline recovery being obvious, it's usually a leading indicator worth paying attention to.

The Bottom Line

If you have a lease expiring in the next 12 to 18 months, the market you renew into will not look like the market you signed into. Vacancy is falling, trophy space is tightening fastest, and conversions are permanently retiring inventory rather than temporarily removing it. The window for aggressive tenant-favorable terms hasn't closed — but it is narrowing every quarter that passes. If you haven't started space planning conversations yet, Q1's numbers are a good reason to start now rather than at renewal.