The office is back. Not the way it was in 2019, but back nonetheless.

Five years after COVID sent everyone home, Canada's commercial office market is showing signs of life that surprised even industry insiders. Vacancy rates are dropping. Big transactions are closing. Companies are scrambling for space.

"There's such a flurry of activity at the moment that it's like we're scrambling to measure it," said Mark Fieder, president of Avison Young Canada.

This isn't just Toronto's story or a banking sector quirk. It's happening across major Canadian cities, driven by forces that go beyond simple back-to-office mandates.

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The Numbers Tell the Story

National office availability dropped to 18.7% in Q3 2025, down from 19.6% a year earlier. That might not sound dramatic until you realize it's reversing years of climbing vacancy rates.

Toronto led the charge with 1.6 million square feet of positive net absorption in Q3, the strongest quarterly performance since the pandemic started. Without Toronto's contribution, the national market would have been flat. But Toronto's momentum signals where other markets are heading.

Downtown Class A vacancy fell 90 basis points nationally in Q3, the largest quarterly decrease since 2008. The top 12 buildings in downtown Toronto now have vacancy below 2%.

Two percent. In a market that was supposed to be dying.

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Why This Is Happening Now

The return-to-office narrative oversimplifies what's actually going on. Yes, major banks are calling people back. Ontario's provincial government mandated four in-office days starting October 2025, shifting to five days by January 2026. But that's not the whole story.

Employment in office-using industries has grown about 25% since February 2020, according to Statistics Canada. Companies hired aggressively during the remote work years. Now they're discovering a problem: they don't have enough seats.

"They never had seats for those people prior to the pandemic, so now they have to accommodate them," Fieder explained.

Banks in particular expanded their headcounts significantly over the past five years. The finance sector added thousands of employees while most office space sat empty or underutilized. Now that firms want people back, there's a genuine space crunch.

This isn't about forcing reluctant employees into unwanted cubicles. It's about companies that grew during remote work now needing physical space for teams that didn't exist before 2020.

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The Quality Factor

Not all office space is benefiting equally. There's a clear flight to quality happening across Canadian markets.

Downtown Class AAA buildings are tightening faster than anything else. Trophy assets in major cities posted their third straight quarter of declining vacancy. These aren't just buildings with nice lobbies. They're spaces with modern HVAC systems, fitness centers, food options, transit access, and the amenities employees actually want.

"Occupiers know that when they're leasing the best space, it's easier to get their people back into the office," Fieder said.

Meanwhile, Class B and C properties continue losing tenants. The market is bifurcating. Premium space is hot. Older inventory struggles. The gap between the two keeps widening.

CBRE's Brendan Sullivan calls it the "flight to experience." Companies aren't just leasing space anymore. They're curating environments.

"There has to be a level of individual experience that's being delivered to the occupant, the tenant, in order to satisfy the demands of the individual workers and employees of that organization," Sullivan said. "It's not just enough to tell people to come into the office; there has to be a reason why."

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The Supply Squeeze

Here's where things get interesting for 2026. Almost nothing new is under construction.

Just 2.6 million square feet of office space is currently being built across all of Canada. That's 0.5% of total inventory, the lowest in 20 years. Outside Toronto and Vancouver, most markets have one active office project or none.

Compare that to the wave of new space delivered right after the pandemic. Developers built aggressively in 2020 and 2021, thinking they were catching up to pre-COVID demand. Instead, that supply hit a market in free fall as companies shed space.

Now the opposite is happening. Demand is returning, but the pipeline is dry.

"There's almost nothing new under construction," said Scott Figler, director of research at JLL. "So now if you're trying to grow, you have to grow into an already existing second-generation space."

Companies planning for future growth are leasing now while availability exists. They're not basing decisions on today's headcount. They're planning for what their teams might look like in 2030.

"They see that vacancy is going to fall, so I think there's a sense of like, 'OK, if we want to get the best rate we're going to get, we should do that now because the deals aren't going to last forever,'" Figler said.

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The Sublease Market Collapse

For three years, sublease space flooded the market as companies unloaded offices they no longer needed. That trend has reversed hard.

Sublet space fell for the ninth consecutive quarter in Q3 2025, down nearly 28% from its mid-2023 peak. Companies are reclaiming space they previously offered for sublease.

Halifax, Edmonton, Montreal, and Toronto all saw significant reductions in sublease availability. This tightens overall vacancy rates faster than new leasing alone would accomplish.

Calgary is the exception, where energy sector mergers and acquisitions continue adding large blocks to the sublease market. But even Calgary's downtown vacancy improved thanks to office-to-residential conversions removing older buildings from inventory.

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What About Hybrid Work?

It's not going away. This matters because it shapes how much space companies actually need.

Many firms adopted a "two-to-three days per week" hybrid model and discovered it doesn't save as much space as expected. You still need a desk for everyone, just on a rotating basis. The space savings only materialize if you move to true hoteling systems, which most companies find employees hate.

Now some organizations are pushing to four or five in-office days. That requires more square footage than three-day hybrid arrangements.

"Businesses are starting to understand that going to that four to five days requires a greater amount of office space," Sullivan said.

But Figler doesn't think we're going back to 2019 norms fully.

"I don't think we're done with hybrid," he said. "We're also operating in an economy where companies are trying to be very conscious of their spend. There's definitely a push to get more people back in the office. That's undeniable and it's more pronounced in certain segments like finance. But I don't think we're going to see companies go fully in office any time soon."

The equilibrium seems to be settling somewhere between full remote and full in-office. That middle ground still requires substantial physical space, just configured differently than pre-pandemic offices.

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Regional Differences

Vancouver has Canada's lowest office vacancy at 13.2%, with Class A space at 12.7%. Limited supply and strong demand from tech companies keep the market tight.

Calgary sits at 21.7% overall vacancy, but that's actually progress from 26.1% in 2021. Interprovincial migration to Alberta driven by more affordable housing is helping employment growth. Plus, conversion subsidies of $75 per square foot are removing obsolete inventory from the market.

Montreal posted negative absorption in Q3, but downtown Class AAA assets held firm at 7.6% vacancy. The market remains polarized between premium and older space.

Halifax delivered its strongest absorption in nearly eight years with 165,000 square feet of positive net absorption. Suburban markets captured most leasing activity there.

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The Kelowna Angle

Kelowna's commercial office market operates on a different scale but shows similar patterns. The city's office market remained subdued through 2024, though local commercial experts note that Kelowna's growing reputation as a business hub and desirable lifestyle continues attracting companies.

Office vacancy in Kelowna sits around 9%, stable compared to major metro markets. Demand for flexible workspaces and co-working facilities has surged as tech companies and startups choose the Okanagan for quality of life reasons.

The city attracts businesses that might have been in Vancouver or Calgary but prefer smaller markets with outdoor recreation access. UBC Okanagan's presence helps anchor tech sector growth.

What's different in Kelowna is scale. There aren't millions of square feet changing hands or high-rise towers under construction. But the fundamentals, companies wanting modern spaces with amenities, hybrid work becoming standard, quality inventory outperforming older stock, all apply.

Local commercial landlords are investing in upgrades focused on energy efficiency and tenant experience. As larger markets see supply constraints, Kelowna's relative affordability for office space could attract more companies in 2026.

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Looking at 2026

Sullivan projects 2026 will be "a year of rebound" for the office segment, especially in Montreal, Vancouver, and Calgary.

The momentum from late 2025 should carry forward. CBRE tracked some of its largest transactions of the past half-decade in the second half of 2025. That pipeline suggests significant activity ahead.

Several factors point to continued absorption. Employment in office-using sectors keeps growing. Return-to-office mandates are expanding, not contracting. The construction pipeline is essentially empty. Companies are pre-leasing space for anticipated growth.

Tech and professional services sectors are expected to drive sustained demand. Finance already proved that large-scale space absorption is happening. Other industries will follow.

The risk factors haven't disappeared. Economic uncertainty persists. Trade tensions create headwinds. A recession could reverse these trends quickly. But absent a major economic shock, the office market rebound appears to have legs.

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What Changed

Five years ago, the conventional wisdom said offices were finished. Remote work was permanent. City centers were doomed. Commercial real estate would collapse.

That narrative proved too simple. What actually happened is more nuanced.

Remote work gave employees flexibility they value. But it also isolated people, hurt collaboration, and made training new hires difficult. Full remote works for some companies and roles. It doesn't work for everyone.

Hybrid arrangements became the compromise. But hybrid requires almost as much office space as full-time in-office work, just used differently.

Meanwhile, companies kept hiring. They expanded teams. Eventually, the math caught up. More employees needed more space.

The "death of the office" crowd missed that employment in office-using industries would grow 25% even during remote work years. They assumed companies would stay the same size forever. They didn't.

Now we're in a period where demand is catching up to reality. Companies have larger teams than in 2019. They need to accommodate them. Good space is scarce. Firms are competing for it.

This doesn't mean offices are "back" to 2019 form. But they're back in a meaningful way. The rebound is real. It's measurable. It's happening across Canadian markets. And 2026 looks set to accelerate the trend.

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Whether you're a business owner considering office space needs, an investor evaluating commercial property opportunities, or simply watching how work evolves, understanding these shifts provides valuable context for the decisions ahead. At Coldwell Banker Horizon Realty, we track commercial real estate trends alongside residential markets because they're deeply interconnected, businesses expanding or contracting affects employment, population growth, and housing demand in communities like Kelowna, making commercial market dynamics relevant even if you're focused on residential property.