This article is the seventh our special report Outlook 2026, which puts 2025 in the rear-view mirror and spotlights challenges expected in the year ahead. See the other articles here.
Large-scale investors have been looking at commercial real estate markets with cautious optimism for a while, and some are now seeing signs that 2026 will prove the optimists right.
Economic uncertainty and volatility is likely to linger as long as trade and tariff wars continue and show few signs of settling. But the turbulence can benefit Canadian real estate, says Paul Morassutti, chairman of CBRE Canada.
“If 2026 turns into a year where the clouds part, we will all be happy,” he said in recent remarks to the Toronto Real Estate Forum. But a stormy economy might compel institutional and high-net-worth investors to look for the calm that Canadian commercial real estate can offer, he added.
“Premiums will be paid for qualities like safety, stability and predictability. And in that regard, Canada screens well,” Morassutti said.
Interest in commercial property is picking up in the United States as well. The Wall Street Journal reported on data from MSCI (Morgan Stanley Capital International) showing that so far in 2025, large investors have bought US$4.6 billion more U.S. property than was sold this year, marking the first time in three years that there was more buying than selling.
U.S. commercial property values are still down 17 per cent from their 2022 peaks on average, but some investors and managers may see real estate as a hedge against a widely concerning bubble in artificial intelligence investments.
Borrowing is easier, too, with the U.S. Federal Reserve cutting its key lending rate to a target of 3.5 to 3.75 per cent—its third cut this year—while the Bank of Canada’s key rate remains at 2.25 per cent. “But base rates remain higher than several years ago, so there is still strain [on real estate investors] from the combination of higher rates and market challenges,” warns LaSalle Investment Management’s ISA (Insights, Strategy and Analysis) Outlook, released in late November.
“The recent and expected continued decline in short-term rates helps borrowers focus on near-term business plans,” LaSalle noted. “This could lead to value-add and opportunistic funds getting more active.”
“Lower rates can also have a positive effect on individual investor interest in real estate as an asset class, as it makes its income more attractive relative to money market funds,” the report added.
The dominant buzz in Canadian commercial real estate markets has been talk, and some action, about return to office. Political leaders such as Ontario Premier Doug Ford have demanded that government employees show up five days a week, Prime Minister Mark Carney says return rules are coming for federal workers, and many private employers are following suit.
Return-to-office mandates have provided a much-needed shot in the arm to office demand.
CBRE Canada’s Paul Morassutti
Finance, government, insurance and resource organizations with offices have all had more workers showing up in the third quarter, according to Colliers Canada’s National Market Snapshot Q3 2025.
This has led to new leases and stronger demand for prime downtown office space for the foreseeable future, the Colliers’ report said. Subleases are up, too, with steady declines in sublease vacancies every quarter, although the strength of this trend varies according to individual Canadian markets.
Trends in industrial real estate are more variable, Colliers noted. Rents are rising in more affordable markets such as Edmonton, Saskatoon and Halifax, but declining in more expensive markets such as Ontario and Quebec.
“Return-to-office mandates have provided a much-needed shot in the arm to office demand, as companies scramble to ensure they have enough space to move to office-first strategies,” Morassutti said. “However, in many cases these mandates are a correction from having cut space too dramatically post-COVID.”
“Industrial vacancies remain low in global perspectives, but have risen significantly from the 1 to 2 per cent range of the post-pandemic period,” according to Colliers. “Major markets are now in the 3 to 5 per cent vacancy range, with slowing demand for large-bay [industrial] space.”
There is still a high degree of uncertainty over whether 2026 will see a continuation of the boom in equity markets, thanks largely to money being poured into AI stocks, or whether there will be a spectacular crash—and how that might affect commercial real estate. According to Colliers’ 2026 Global Investor Outlook report, data centres, which are essential for AI to function, accounted for 31 per cent of total capital raised in the first three quarters of 2025, up from an average of 15 per cent in 2020.
“Investor interest [in data centres] is global, driven by rapid AI growth and corporate investment from large tech firms and infrastructure funds,” the report said. “Looking ahead to 2026, the sector will continue to attract attention, with investors focusing on energy availability and infrastructure.”
Artificial intelligence will continue to have the potential to be hugely disruptive, but it’s unclear to what extent. “It could drive greater productivity, prosperity and boost real estate demand,” LaSalle’s report says. “Or it could be disruptive to the economic structure and lead to changes in income and wealth distribution that adversely impact real estate demand.
“Our general view is that the impact will be more incremental than transformational. Technology does deliver life-changing impacts (and these are not universally positive), but also rarely lives up to the initial hype,” the report adds. Investors should not expect that AI will either solve all their problems or fundamentally change the structure of the economy any more than it already has.
In short, there is reason for cautious optimism in 2026—just as there was at this time last year. Whether that proves to be justified this time around remains to be seen.
David Israelson is a writer, editor, consultant and non-practising lawyer. He is principal of Eon Communications and Research, which he founded after more than a decade as a senior public relations executive. David contributes regularly to national and international print and online publications in addition to corporate and institutional writing across all media. He writes extensively on business, finance and investment, sustainability, conservation, energy, housing and land-use planning, international trade, travel and transportation politics and real estate, among other areas.
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