Market Snapshot - February 2026

Canada & Greater Toronto Area

Commercial Real Estate Market Report

Q1 2026 | February Edition

Prepared by: Mel Giannone, Paramount Real Estate Properties Inc., Brokerage
Market Focus: Greater Toronto Area (GTA), Canada
Asset Coverage: Residential Ownership, Multifamily Rental, Office, Industrial, Retail

Executive Summary

Canada’s commercial real estate market entering 2026 is defined by stabilization following two years of monetary tightening and valuation recalibration. Inflation has moderated, currently standing at 2.3%. Interest rates have plateaued along with Government of Canada Bond yields. Capital markets are transitioning from defensive positioning to selective re-engagement. We see capital coming-off the sidelines now that the fear from U.S. tariffs is subsiding.

Within the Greater Toronto Area—the country’s most liquid and institutionally preferred real estate market—the recovery is uneven but measurable.

• Downtown office fundamentals are incrementally improving.

• Industrial markets are rebalancing after peak-cycle conditions.

• Retail remains, for now, structurally resilient.

• Multifamily continues to demonstrate durable income performance.

• Residential ownership remains rate-sensitive.

• Residential Rents have declined for 16 consecutive months.

• By the final quarter of 2025, the Greater Toronto Area (GTA) commercial real estate market recorded a moderate deceleration in investment activity.

Here is this month's snack-sized sector-by-sector assessment of current conditions and outlines strategic considerations for investors, landlords, and occupiers. Each section has been curated to be read in under 60 seconds. Enjoy your 60 Seconds In CRE breakdown.

1. Macroeconomic Overview

Labour Market Conditions

Recent employment data from Statistics Canada suggests the rate of unemployment is moderating rather than contracting. Ontario has experienced pockets of job softness, particularly in cyclical sectors tied to construction and services. Participation rates have influenced headline unemployment figures, as fewer people search for work, which mask some underlying weakness. The current Participation Rate for Canada sits at 65%.

This environment does not signal systemic distress. It does suggest caution. Corporate expansion plans are measured. Hiring activity is disciplined. Leasing decisions are taking longer to finalize.

For commercial real estate, demand remains present but selective. Tenants are prioritizing efficiency over growth. Occupancy costs are under greater scrutiny. The tone of the market is pragmatic rather than expansionary.

Inflation and Monetary Policy

Overall, inflation continues to trend downward from its peak in June 2022; although the CPI Index rose year-over-year in January mainly because of gasoline prices. Consumer confidence appears to be on an upswing this year. The Bloomberg Nanos Canadian Confidence Index registered 53.15 in the week ended Feb. 13, up from 50.16 four weeks earlier, according to data released Tuesday.

A reading above 50 indicates net positive views. The latest result marks the strongest level since November 2024.

While confidence remains well below the post-pandemic peak, the move suggests Canadians are feeling incrementally better about both their own finances and the broader economy.

This coincides with a moderation in shelter price inflation, which reached 1.7% in January, marking the first time the rate has fallen below 2% in nearly five years. The slowdown in shelter costs has been driven by easing rents and mortgage interest costs, as population growth stalls and the Bank of Canada holds its key interest rate at 2.25%.

Monetary policy is data-dependent. The central bank remains cautious but is no longer in a tightening posture.

For real estate markets, this stability matters. Financing costs appear to have plateaued for the time being. Cap rate expansion has slowed materially. Underwriting assumptions are becoming more predictable. Transactional confidence is gradually improving.

2. GTA Asset Class Analysis

Residential Housing Market

The GTA ownership market remains in a dormant phase. Pricing is below peak-cycle levels. Sales activity has stabilized from prior lows; in some cases by up to 30%. According to the Toronto Regional Real Estate Board (TRREB), January home sales volume was down by 19.3% year-over-year. New listings were also down 13.3% year-over-year. The current average price for a home in Toronto has slid to $973,289 (across all types), a 6.5% drop year-over-year.

The same momentum has been felt on a national level. Home sales fell 5.7% month-over-month, while new listings jumped 7.3% month-over-month. The Canadian Real Estate Association (CREA) says you can blame the weather for the decline, especially in Ontario where a mid-month snow storm in the GTA and south-western Ontario caused a dip in sales. It's not a fundamental drop in demand, it's a logistical drop in demand.

Following one of the weakest years on record, Toronto developers just had the worst start to a year ever.BILD GTA and Altus Group data show Greater Toronto new home sales slipped lower in January, making it the weakest on record. The pullback in inventory was met with an even larger drop in sales, leaving the market with an unusually weak demand balance—about 76 months of inventory, if not a single new project is announced.

New CMHC and TransUnion data shows mortgage delinquency rates in Toronto and Vancouver climbed in Q3 2025. Vancouver’s rate has more than doubled from its 2022 record low, though it remains below the national level. Toronto wishes its rate only doubled—the region has now surged 4.5x its record low, reaching the highest rate since at least 2012.

Affordability remains the defining constraint. Buyers are highly rate-sensitive. Mortgage qualification continues to limit purchasing power. Condominium product in select downtown submarkets faces elevated supply, which has extended time on market.

Freehold housing has demonstrated relative resilience. Desirable suburban nodes with strong schools and transit connectivity continue to attract stable demand. Sellers have become more realistic in pricing expectations. Buyers have regained negotiating leverage.

The ownership market is not accelerating. It is consolidating. Confidence is rebuilding slowly rather than rapidly.

Multifamily Rental Market

The purpose-built rental sector remains the GTA’s most institutionally supported asset class. It is transitioning from extraordinary growth to sustainable normalization.

Rental Fundamentals

Vacancy has increased modestly from historic lows. It remains tight relative to long-term equilibrium levels. New deliveries, particularly in downtown Toronto, have introduced localized competitive pressure in recently completed Class A buildings.

Leasing velocity in premium towers has slowed compared to peak absorption years. Concessions have re-emerged in select projects. Competition is most visible in micro-units and smaller one-bedroom configurations.

Mid-market and older stabilized buildings continue to perform consistently. Suburban transit-oriented communities remain well absorbed.

Vacancy, currently at around 3%, has moved toward balance. It has not moved toward oversupply on a structural basis.

Rental Rate Trends

Rent growth has moderated significantly from double-digit increases observed in 2022 and 2023. Rents have declined for 16 consecutive months, but the annual rate of decline slowed for a 3rd month in a row. Toronto and Vancouver rents hit their lowest levels in almost 4 years. Unsold condos and purpose-built rental development, plus pullback in immigration, has resulted in a year of poor rental market performance, albeit mostly in newer product. Asking rents in new-build downtown projects have flattened. Some highly supplied nodes have experienced slight year-over-year softening.

Development Pipeline

The GTA maintains one of the largest multifamily development pipelines in Canada. Institutional capital continues to allocate toward rental construction. Municipal intensification policies and transit-oriented development initiatives are reinforcing long-term rental supply growth.

Construction financing has become more selective. Development feasibility is increasingly sensitive to land basis and hard costs. Projects underwritten during peak rent growth assumptions are facing margin compression.

Future housing starts may moderate beyond 2026 as feasibility recalibrates. If this occurs, supply growth could taper in subsequent years. That dynamic would reintroduce upward pressure on rents over the medium term.

Multifamily Investment Activity and Cap Rates

Multifamily transaction volume remains below peak-cycle levels but has stabilized relative to 2024. Cap rates expanded meaningfully from historic lows during the rate tightening cycle. Recent quarters indicate that expansion has plateaued.

Institutional investors remain active buyers of stabilized core product. Private capital is pursuing value-add repositioning strategies in mid-tier assets. Underwriting standards are conservative. Debt coverage ratios and exit cap rate assumptions are being stress-tested.

Regulatory considerations continue to influence acquisition strategies. Rent control frameworks and turnover restrictions require careful modeling. Investors are prioritizing operational efficiency and capital expenditure discipline.

Multifamily remains the GTA’s most durable income-producing asset class. Growth is normalized. Fundamentals remain structurally supported.

Office Market

Toronto’s downtown office market has shown measurable improvement. 141 Bay Street – CIBC SQUARE's 50-storey second tower – is fully leased and on track to imminently achieve initial occupancy across its low- and mid-rise floors. Recent quarters have recorded positive absorption in premium buildings. Vacancy has compressed modestly in trophy and Class A assets, while older Class B & C assets still have lower occupancy and slower lease-up (absorption) rates to contend with. It remains a bifurcated market between the new versus the old building, signature buildings versus the less amenity rich buildings, new south-core of Toronto and the balance of downtown; and lastly by size - larger blocks of space versus space under 5,000 square feet.

Flight-to-quality remains the dominant theme. Tenants are consolidating into higher-performing space. Amenity-rich and transit-connected buildings are outperforming older commodity stock.

Suburban office conditions remain uneven. Much of the Airport area collection of buildings receive more attention than the balance of suburban properties. Smaller space, under 3,000 square feet is challenging to find. Class B and C inventory faces greater vacancy pressure. Obsolescence risk is increasingly evident in buildings lacking modernization.

The recovery is selective. It is driven by asset quality rather than broad expansion. The downtown core is stabilizing. The suburban market is differentiating more clearly between competitive and challenged inventory.

Industrial Market

The GTA industrial sector is in a rebalancing phase. Toronto’s industrial availability rate decreased by 30 basis points year-over-year to 4.8%, while positive net absorption for two consecutive quarters signalled renewed, albeit cautious, demand for existing space. New supply deliveries over the past years have increased availability. Net rents have softened modestly from peak levels.

A distinct bifurcation in demand emerged at the tail end of 2025 as the combination of increased total supply and subdued leasing activity on new inventory shifted leverage towards occupiers.

Demand for logistics and warehousing remains present. E-commerce penetration and supply chain restructuring continue to support long-term fundamentals. However, tenant leverage has improved compared to the ultra-tight conditions of 2022.

Developers are moderating speculative starts. Industrial construction activity continues to slow as pre-construction leasing is impacted with continued uncertainty. This is a stark contrast to a few years ago, whereby most of the space was leased before completion. Capital discipline is returning to the sector. Rental growth expectations are being recalibrated to sustainable levels.

Industrial remains fundamentally healthy. It is transitioning from expansionary to equilibrium conditions. The region’s strategic location, dense population, and the sustained requirement for e-commerce and logistics infrastructure continued to underpin its underlying strength.

Retail Market

Retail fundamentals in the GTA remain steady. It was the GTA's bright spot in 2025, up 16% on strong demand for food-anchored assets. Canadian retail sales are on track to rebound to start the year after barely expanding in the fourth quarter. Receipts for retailers increased by 1.5% in January, according to an advanced estimate from Statistics Canada. Despite U.S. tariffs fuelling uncertainty in the Canadian economy, consumers continued to shop in 2025, with retail sales up 4% year over year Grocery-anchored and service-oriented centers continue to demonstrate resilience. Open-air formats in high-density corridors are performing well.

Limited new construction has supported occupancy stability. Landlords in prime submarkets retain pricing power. Secondary corridors are more sensitive to consumer spending dynamics.

Tenant demand remains concentrated in daily-needs categories. Fitness, healthcare, and essential services are active. Discretionary retail remains more cautious.

Retail is no longer the highest-growth asset class. It is, however, one of the most stable in the current cycle.

3. Commercial Real Estate Investor Perspective

By the final quarter of 2025, the Greater Toronto Area (GTA) commercial real estate market recorded a moderate deceleration in investment activity. This decline was largely attributed to a “pull-forward” of activity in the second quarter of 2024, where investors accelerated deal closures to precede a proposed, and later cancelled, increase in the capital gains inclusion rate.

Market performance was further influenced by heightened investor uncertainty during the second quarter of 2025, driven by geopolitical tensions and a perceived deterioration in Canada’s economic outlook. While these factors exacerbated the annual decline, they did not indicate a pause in interest. Rather, they prompted a cautious and optimistic shift toward defensive asset classes.

Land acquisition activity has contracted sharply - transactions for Residential Land declined 24% and land for Commercial use fell 12% over the past year. Elevated borrowing costs and a complex regulatory environment kept developers in a wait-and-see mode. Cap rate expansion has largely plateaued for most asset classes. Pricing expectations between buyers and sellers are narrowing.

Capital allocation is focused on income durability. Investors are prioritizing asset quality and location over yield compression. Leverage structures are conservative. Equity contributions are higher than during the previous expansion phase.

Multifamily remains the most sought-after sector due to defensive cash flow characteristics. Although, sector recorded a 5% year-over-year decrease in transaction volume. Prime industrial assets are trading at recalibrated pricing. Select downtown office opportunities are emerging below replacement cost.

The office sector observed a slowdown in investment volume, represented by a 19% year-over-year decrease. Investment activity was primarily concentrated within the Class AAA segment, as investors prioritized premium assets. This focus was driven by rising tenant demand and improving utilization rates, which signalled positive leasing momentum for the coming year. Return-to-work mandates have had an increasing impact on occupancy shifts, particularly in the downtown core.

The retail sector achieved a remarkable performance in 2025, recording a transaction volume of $2.4 billion. This represented a 16% year-over-year increase, solidifying retail as the top-performing asset class in the GTA. Moreover, food-anchored retail strips in Toronto were ranked the most desirable product/market combination in the fourth quarter of 2025.

Risk underwriting remains rigorous. Exit cap rate assumptions are conservative. Tenant credit and lease rollover schedules are under close examination. From a lender's perspective, the median loan-to-value (LTV) has risen slightly year-over-year for multifamily, downtown office and small bay industrial, indicating lenders’ willingness to offer more loan proceeds for these assets. Conversely, the median LTV is modestly lower year-over-year for grocery-anchored retail and large bay industrial.

The market is transitioning from defensive preservation to strategic accumulation distressed assets. Investors with long-term horizons are beginning to re-enter with measured conviction; as borrowing costs begin to stabilize and positive leverage can be achieved once again.

4. Current Outlook – 2026

The GTA market is moving from volatility to recalibration. Inflation is moderating. Monetary policy is stable. Transaction confidence is improving incrementally.

Employment trends in Ontario will remain a key indicator of tenant demand. Interest rate direction in the second half of 2026 will influence refinancing and acquisition velocity. Development feasibility will shape future supply growth, particularly in multifamily.

Multifamily remains the most stable income sector. Office recovery is asset-specific but credible. Industrial growth is normalizing. Retail stability persists in necessity-driven formats.

The foundation for the next expansion phase is forming. Performance in this environment will reward disciplined underwriting, prudent capital structures, and operational precision.