Not every market is struggling. Not every market is booming. What's actually happening across Canada's industrial sector right now is something more nuanced, and honestly more interesting, than either of those narratives.

The headline going into 2025 was simple enough: rising interest rates had cooled industrial demand through 2023 and 2024, and tariff uncertainty from the ongoing Canada-U.S. trade dispute was doing a number on business confidence. Companies that would normally be signing new leases or expanding their footprint were sitting on their hands, waiting to see what the trade landscape would look like six months out. That hesitation hit some markets harder than others. And by the time year-end data rolled in, a clear divergence had emerged between regions.

This isn't a story about Canada's industrial market going bad. It's a story about how the same set of pressures can produce completely different outcomes depending on where you're standing.

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What Happened in the GTA

The Greater Toronto Area is Canada's largest industrial market, and it had a complicated 2025. Asking rents fell 4.9 per cent to $21.88 per square foot, and vacancy climbed from 2.9 per cent to 3.4 per cent. Downtown Toronto saw a sharper jump, with vacancy rising to 2.1 per cent, a meaningful pullback from the almost impossibly tight conditions the market saw during the pandemic years.

But here's the thing: context matters. A 3.4 per cent vacancy rate is still historically tight. For most of the past two decades, GTA industrial vacancy ran higher than that. What we're really watching is a normalization after years of pandemic-era distortion, not a collapse.

The structural issue isn't vacancy. It's supply economics. The rent levels required to make new industrial construction financially viable remain well above what the current market will support. That math doesn't work for developers right now, which means the new supply pipeline is muted going into 2026 and 2027. Less new supply eventually means tighter conditions and firmer rents, but the timeline on that is longer than most tenants want to think about.

What's already happening at the margins, though, is telling. Tenant incentives (free rent periods, fit-out allowances, that kind of thing) are starting to contract in core GTA submarkets. That typically happens before rents actually move. It's an early signal that landlords are gaining back some of the leverage they lost over the past two years.

The other genuinely encouraging data point: net absorption in the fourth quarter of 2025 was one of the strongest quarters the GTA has seen in more than three years. The market paused in 2025, partly because of tariff anxiety, but the underlying demand is real.

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Why Calgary Is Playing a Different Game

Calgary didn't get the same memo.

Vacancy in Calgary's industrial sector has stayed in the three to four per cent range, which by any measure is tight. New industrial supply has been coming online, but it's being absorbed quickly enough that vacancy hasn't materially eased, and rents haven't followed the downward trend visible in Toronto. In Calgary's case, demand has simply stayed strong enough to keep the pressure on.

Part of that is the economy. Calgary's real GDP growth is expected to accelerate from 1.8 per cent in 2025 to 2.6 per cent in 2026, the highest projected growth rate among Canada's major cities. Calgary topped investor preference rankings in Q4 2025, ahead of both Vancouver and Toronto in survey data. More capital is moving west. The diversification story that Alberta has been trying to tell for years is actually starting to show up in the data.

The tariff situation has also had an unexpected effect on Calgary's industrial market. Construction costs for new industrial space have risen meaningfully because commercial construction relies heavily on steel, and steel is right in the middle of the Canada-U.S. tariff fight. The U.S. placed a 25 per cent tariff on Canadian steel and aluminum, and Canada has retaliated in kind. That compounding effect on materials costs hasn't slowed leasing activity in Calgary. It has, however, made new builds more expensive, which flows through to higher operating costs and rents. More expensive supply creates a floor under existing rents.

And the demand side in Calgary has broadened well beyond its traditional base. Logistics operators, data centre developers, and hybrid industrial-retail concepts have been absorbing space. Even non-traditional users, including recreational operators running indoor volleyball and pickleball facilities, have been filling industrial product that would otherwise sit vacant. That's not a trend anyone would have predicted five years ago, but it reflects how elastic industrial demand has become.

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The Tariff Factor Deserves Its Own Section

The Canada-U.S. trade dispute has touched this sector in two distinct ways, and it's worth separating them.

First, there's the demand side effect. Tariff uncertainty slowed leasing decisions across most of Canada through much of 2025. Companies with cross-border supply chains didn't want to commit to long-term space requirements while the trade picture was unclear. That hesitation hit markets like the GTA particularly hard, because GTA industrial demand has historically been driven in part by trade-intensive sectors like logistics and manufacturing.

Second, there's the supply side effect. A 25 per cent tariff on imported steel means new industrial buildings cost more to build. That's not a small number. The Canadian government has introduced some remission measures to provide temporary relief to manufacturers, but the broader uncertainty about where tariffs land hasn't gone away. For developers contemplating speculative industrial projects, higher input costs plus market uncertainty equals fewer shovels in the ground.

The perverse outcome: tariffs that were supposed to hurt Canadian industry may actually be supporting industrial rents in markets with constrained supply by limiting new construction. That doesn't make tariffs good policy. It just means the real world doesn't always follow the script.

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The Office Piece Is Different but Connected

Industrial and office markets operate separately, but they're both reflecting the same underlying theme: companies are rethinking how they use space, not just how much of it they need.

Leasing activity reached its highest annual total since 2018, but the growth is being driven by tenants relocating rather than expanding. Companies moving from older Class B and C space into higher-quality, more efficient footprints. They're not necessarily taking on more square footage. In many cases they're taking less, but using it better. The question of how space is used is getting more attention than how much space a business occupies.

That shift has a real impact on vacancy metrics, because it suppresses overall space requirements even when leasing activity looks healthy. A tenant who moves from 20,000 square feet of aging space into 15,000 square feet of modern space shows up as a lease transaction, but it also shows up as net negative absorption.

Return-to-office momentum is real, though. The trend toward more in-person attendance is expected to bring greater stability to office markets heading into 2026, particularly in higher-quality downtown product. Downtown Toronto's vacancy rate of 2.1 per cent is actually the lowest among Canada's major commercial markets.

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What the National Picture Looks Like

Step back from any individual city and the Canadian industrial market looks more stable than the GTA headlines suggest.

The national average industrial asking rent closed 2025 at $15.11 per square foot, down 4.5 per cent year-over-year, but the rate of decline slowed considerably through the year, averaging just 0.6 per cent per quarter by the end of 2025. National industrial vacancy settled at 5.5 per cent in Q4 2025, edging up only modestly through the year, about 10 basis points per quarter since Q2. Industrial vacancy had been rising for twelve consecutive quarters before plateauing at the end of 2025. That plateau may signal an inflection point.

Net absorption recovered strongly in the back half of 2025, totalling 7.9 million square feet over the final two quarters alone after negative absorption in the first half. Toronto contributed 5.8 million square feet of that in the second half. The year ended better than it started.

Institutional capital came back in 2025 in a meaningful way. Pension funds, REITs, and private equity deployed nearly $15 billion in Canadian commercial real estate, the largest institutional share of acquisitions since 2021. That's not the kind of capital that chases hype. Those buyers are making a considered bet that Canadian commercial real estate fundamentals are improving. And for industrial specifically, the long-term case is intact: e-commerce, logistics, data infrastructure, and Canadian reshoring efforts all point toward sustained demand.

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The Outlook From Here

Heading into the rest of 2026, the industrial market looks like this: rents should begin firming as new development stays muted and absorption continues to recover. Vacancy should begin declining nationally once the backlog of new speculative space from 2024 and early 2025 gets absorbed. Calgary will likely maintain tight conditions. The GTA will gradually tighten as supply constraints reassert themselves.

The wild card is trade policy. If the Canada-U.S. tariff situation escalates further, the construction cost environment gets worse, which paradoxically supports rents but makes new investment more complicated. If it eases, business confidence recovers faster and leasing demand accelerates. Either path has a version of the story where industrial real estate does reasonably well.

What the data from 2025 makes clear is that this sector is more resilient than the negative headlines suggested. The pause was real. The recovery is also real. And the regional variation is a reminder that Canadian real estate doesn't behave as one monolithic market. It never really did.

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Coldwell Banker Horizon Realty provides commercial and residential real estate services in Kelowna and the Okanagan. For questions about commercial property opportunities in our region, contact our team directly.