In a forecast delivered to the Toronto Real Estate Forum, Paul Morassutti, chairman of CBRE Canada, shared that the world’s uncertain economy could wind up benefiting Canadian commercial real estate in 2026.
“If 2026 turns into a year where the clouds part, we will all be happy,” he said. “But if you agree that we are entering an extended period of heightened uncertainty and volatility, not just here but globally, then logically there will be demand for investments and markets that reduce overall volatility.”
According to Morassutti, in the coming year, investors’ renewed focus on Canada could significantly work to the advantage of commercial real estate in the country.
“Premiums will be paid for qualities like safety, stability and predictability. And in that regard, Canada screens well,” Morassutti added.
Investor activity
Morassutti acknowledged the closure of real estate deals as a current challenge. However, he highlighted CBRE’s investment pipeline, with investment activity this year similar to investment volumes in 2019. According to CBRE’s press release, an exception would be offices.
“Although sales have been steadily increasing and investors are now leaning into this asset class that only a short time ago was a no-fly zone,” he said. “The depth of bids on most investment deals is deeper than it was 12 months ago, and the animal spirits of the market have improved.”
Morassutti noted that investors who have put off decisions could not continue that delay indefinitely.
“Capital markets are healthy, and deal flow is improving and buyers and sellers both want to transact,” he added. “If we can just get a bit of clarity around the economy, real estate is well set up for a robust recovery.”
Office recovery
Morassutti emphasized that the office sector has seen more positive than negative developments and has maintained its recovery. He added that office leasing has seen sharply rising revenues amid increased activity.
“Trophy buildings are largely full,” he said. “Q3 absorption was above historical averages. Hard hit markets like San Francisco and Manhattan are rebounding. And new supply is at a 20-year low. This is by far the most important ingredient in the office recovery.”
Morassutti noted that adding demand to a market with far fewer options for tenants will make rents increase and vacancy decrease. According to him, return-to-office mandates offered “a much-needed shot in the arm to office demand, as companies scramble to ensure that they have enough space to move to office-first strategies.”
However, he noted that such mandates are corrections in many situations from drastically reducing space following the COVID-19 pandemic. He stressed the rising organic demand for office space.
Retail stabilization
According to Morassutti, regardless of financial troubles, the retail sector has kept marching on.
“There has not been a material drop in tenant demand and rents across the country are flat or up,” he said.
Morassutti explained that insufficient new supply and resilient consumer spending have helped stabilize the sector.
“Retail’s outperformance is a good reminder to us all: If a pundit declares an asset class to be dead, you can be pretty sure that it isn’t,” he said. “Failed tenants have been replaced by stronger, better retail formats.”
Morassutti acknowledged improvements in the integration of digital and physical presence, reflected in investment sales.
“Grocery-anchored retail continues to offer the best liquidity of all asset types,” he said. “ And even enclosed malls – declared dead 10 years ago, then again during COVID – have rebounded. In 2019 you couldn’t give away enclosed malls. In the past three years there have been 11 sales.”
Condos and rentals
According to Morassutti, unsold condos and purpose-built rental developments, alongside decreased immigration, have led to poor rental market performance, primarily in newer products.
He agreed with forecasts of a stronger market in three to four years from now upon clearing out unsold condo inventory. However, he accepted that the market would not look the same then.
“The first victim will the 60- and 70-storey buildings because you simply won’t be able to achieve pre-sales,” Morassutti said. “Eventually perhaps, but not anytime soon. As we recover, smaller projects appealing primarily to end user will be the first to come online.”
Morassutti suggested waiving development charges to ensure the immediate commencement and construction of projects.
Industrial improvement
According to CBRE’s press release, Morassutti acknowledged that industrial supply could not keep up with demand for years, with rents rising and vacancy declining.
“In recent years, the situation has flipped,” he said.
Morassutti explained that this reversal has resulted in vacancy going up across the board and rents going down from their peak.
“The good news is that the market is already improving,” he said. “Some markets have already troughed – Vancouver for example. While others like Toronto are expected to stabilize in 2026.”