With interest rates stabilizing and capital positions solidifying, the Greater Toronto commercial real estate market is expected to see a measured return of investor confidence and selective deal activity in 2026. Recent improvements have begun to support the gradual re-emergence of deferred demand and longer-term investment considerations, with transaction activity expected to build as the year progresses. Improved clarity around borrowing costs and asset pricing has helped to narrow the gap between buyers and sellers, allowing high-quality, income-producing assets to begin trading more consistently.
Purpose-built rental drives momentum in Greater Toronto commercial market
Multi-unit residential has continued to be the strongest asset class, with the shift to purpose-built rental well underway throughout the city. Despite a glut of inventory on the market and weaker demand, some developers have moved forward with new rental construction. This strategy hinges on a longer-term outlook that anticipates healthier market conditions in the years ahead as condominium supply is absorbed, according to the Q4-2025 Rental Market release by Urbanation Inc. The report found completions of purpose-built rentals reached a more than 40-year high of nearly 6,400 units in 2025. The Greater Toronto Hamilton Area (GTHA) has another 150,000-plus approved rentals in the pipeline, waiting to become economically feasible.
National market continues to evolve
REMAX Canada’s national 2026 Commercial Real Estate Report examined first-quarter activity across 12 major Canadian markets and found that the commercial property market has continued to evolve with improved absorption, particularly in the office sector, where return-to-office mandates are supporting increased leasing activity in premium space. Industrial demand has remained durable nationwide, with inventory challenges persisting. Retail fundamentals have continued to outperform expectations, supported by population growth and infrastructure investment, reinforcing long-term demand. While capital deployment has been measured in most markets analyzed, improving financial conditions have prompted renewed interest in well-located, income-producing assets.
With the future in mind, private investors, REITs and institutional investors returned to the Greater Toronto Area’s multi-residential market in the fourth quarter of 2025, spilling into 2026. With investors looking to get ahead of the curve, the trend is expected to continue. In the Yonge-Eglinton area, for example, Minto Apartment REIT just sold 150 Roehampton Ave., a 148-unit, 17-storey apartment building for just over $90 million to an undisclosed buyer, while Graywood acquired 34-70 Montgomery Ave. for $42 million from First Capital REIT last month.
Project viability has become a key constraint for large condominium developments, with many projects shelved for the time being or cancelled outright. Eighteen projects totalling more then 4,000 units were cancelled in 2025, while an additional 75 new condo projects in the GTHA are on indefinite hold, according to Urbanation Inc. As a result, annual completions are projected to decline from nearly 30,000 units in 2025 to just over 14,000 units by 2027, with virtually no new supply expected by 2029. These financing challenges have also contributed to an uptick in power of sale activity.
The GTA’s aging population is expected to create opportunities over the longer term for builders and developers, with growing demand for mixed-use residential buildings tailored to seniors, incorporating ground-floor retail and service components such as health, fitness, wellness and personal care.
Retail anchored by built-in demand
Retail availability has remained low overall in Toronto’s core, particularly in prime residential neighbourhoods. The advent of new high-rise buildings—both condo and purpose-built rental—have changed neighbourhood retail over past decades. While freestanding retail remains common on major thoroughfares, the proliferation of retail in mixed-use residential and office buildings has been exponential. Although lease rates are higher in these newer buildings, retailers and restaurant operators have been supported by the presence of a built-in residential customer base.
Industrial tight, but stabilizing
The GTA’s industrial availability rates have continued to trend lower, down to 4.8 per cent in the fourth quarter of 2025, compared to 5.1 per cent during the same period in 2024, as reported by Altus Group. This represented the second-lowest availability rate in the country in Q4 2025, with only Ottawa experiencing tighter conditions. Demand has remained strongest for small bay units, but inventory levels have been exceptionally limited and any new product coming to market has been quickly absorbed. Some larger industrial developments have been reconfiguring their floor plans to create more smaller-bay offerings.
Availability has also been limited for large tracts of industrial land, with the cost per acre now ranging from $3.5 million to $4 million. Some large construction companies have been developing sought-after, purpose-built industrial along major corridors including Highways 27, 400, and the 404, with newer industrial nodes planned along Highway 413 in Halton, Peel, York Region and Durham Regions. Others, including investors and end users, have been looking to retrofit existing industrial product.
Industrial lease rates have stabilized in the GTA after rising as high as $20 per sq. ft. Most units have hovered in the range of $16 to $18 per sq. ft., although some buildings in the suburbs have fallen to $14 to $16 per sq. ft. Industrial lease rates for older buildings have dropped more sharply than newer properties over the past year. Previously, logistics firms over-leased suboptimal space (low ceilings) due to limited inventory, expecting growth that never materialized. They’ve shifted to right-sizing to actual needs. Prices for industrial product are off year-ago levels by 10 to 15 per cent, depending on quality and location.
Most purchasers have been owner-users, with demand greatest for product that can accommodate automotive, manufacturing, warehousing and distribution businesses. Recent zoning changes in suburban markets have brought new buyers to the forefront, with a growing number of churches looking for space in industrial communities near residential nodes. Large buildings with few columns and accessible parking have made industrial properties ideal for conversion.
Office market remains divergent
Renewed strength has been reported in quality AAA-class buildings as high-end tenants have sought amenity-rich space in downtown Toronto. However, the trend has yet to extend to office buildings in areas outside the core. The return-to-office (RTO) mandate has contributed to a more vibrant downtown core, with several large organizations adding space to their overall footprint to accommodate returning workers. While the market has still favoured tenants, this is less true in AAA space, where vacancy rates have hovered as low as two per cent for prime office space.
Office buildings in more suburban locations, where supply outpaces demand, offer tenants greater opportunities. Mississauga experienced a strong upswing in leasing activity in the fourth quarter of last year, with over a million square feet of positive absorption. Lease rates have fallen to pre-2019 levels in most of these buildings, with tenants using the challenging environment to negotiate favourable deals. Landlords are more amenable, apt to offer the right tenants—those with proven track records and good financials—leasehold improvements, renovation budgets and more competitive lease rates on long term leases. Landlords have faced some of the toughest conditions in decades, with taxes and maintenance fees oftentimes more than net rent.
Commercial transition underway as financial conditions improve
The GTA’s commercial market has entered a transitional phase, shaped by modest economic growth but improving financial conditions. While challenges have persisted in the office asset class and condominium development, helping to re-establish footing are strength in rental housing with stabilizing rental rates in line with inflation, resilient retail fundamentals and sustained industrial demand. As financing options expand to include the growing role of private lenders offering more flexible borrowing solutions and capital becomes more accessible, confidence should gradually return. This year is already showing signs of stabilization, setting the stage for more balanced and durable growth into 2027.
