The Canadian commercial real estate market is in transition. Not crisis, not boom. Transition.
Let’s break down what’s actually happening across the major property sectors, where the opportunities are, and what it means for owners, investors, and borrowers.
The Big Picture
Commercial real estate values in Canada have been adjusting since mid-2022. Higher interest rates changed the math on property valuations. Cap rates expanded. Transaction volume dropped. Some owners who bought at peak prices are underwater on their mortgages.
But here’s what’s important: the adjustment hasn’t been uniform across sectors or geographies. Some property types are performing well. Others are struggling. The story is in the details.
Overall transaction volume in Canadian commercial real estate was down about 35% in 2024 compared to 2021. That’s significant. But volume in 2025 showed signs of stabilization, and early 2026 data suggests we might be finding a new equilibrium.
Prices are down from peak levels, but the degree varies enormously by asset class. Industrial properties have held up well. Multi-family has been resilient. Office and retail have seen more significant corrections.
Office: The Complicated Story
Let’s start with the sector that gets the most attention: office properties.
Downtown office towers in major cities are facing real challenges. Vacancy rates in downtown Toronto, Vancouver, and Calgary are elevated. Many companies have reduced their office footprints as hybrid work has become permanent for a lot of white-collar jobs.
The vacancy rate for downtown Toronto office space is running around 16% to 17%. That’s well above the historical average of 8% to 10%. Vancouver is similar. Calgary actually has higher vacancy, but that’s partly a legacy issue from the energy sector downturn years ago.
But here’s the nuance: not all office space is suffering equally.
Class A buildings with modern amenities, good transit access, and strong ownership are maintaining relatively high occupancy. Tenants want quality space. They’re willing to pay for it. The flight to quality is real.
Class B and C buildings, particularly older towers without significant recent renovations, are seeing the worst vacancy and the most pressure on rents. Landlords who can’t or won’t invest in improvements are getting squeezed.
Suburban office parks are performing better than downtown in many markets. Companies that don’t need the prestige of a downtown address are finding good value in suburban locations, and employees in many cases prefer the easier parking and shorter commutes.
What does this mean for financing? Lenders are very cautious on office properties. They want to see high occupancy, creditworthy tenants with long lease terms, and solid cash flow. Loan-to-value ratios are down, often to 60% or lower. Rates are at the high end of commercial ranges.
If you own office property and need to refinance, be prepared for tighter terms than you had five years ago.
Industrial: The Strength Story
Industrial properties have been the star performers of the commercial sector over the past five years, and that continues in 2026.
E-commerce isn’t going away. Companies need distribution centers, last-mile delivery facilities, and modern warehouse space. Canada has underbuilt industrial capacity for years, so demand is strong.
Vacancy rates for modern industrial space in Greater Toronto and Greater Vancouver are running around 3% to 4%. That’s extremely tight. Landlords have pricing power. Rents have been climbing.
Industrial properties outside the major metro areas are also performing well. Cities like Winnipeg, Regina, and Moncton have seen industrial development to serve regional distribution needs.
The quality of the building matters here too. Modern facilities with high ceilings, good loading capabilities, proximity to major highways, and adequate power supply are in highest demand. Older industrial buildings are getting redeveloped or repurposed.
Lenders love industrial properties right now. Strong fundamentals, consistent demand, relatively simple to operate. You’re looking at competitive financing terms, higher loan-to-value ratios, and rates at the lower end of commercial ranges.
If you’re looking to acquire or develop industrial property, this is a reasonable environment to do it. Financing is available and lenders are actively looking for these deals.
Retail: The Mixed Picture
Retail commercial real estate has been declared dead many times over the past decade. It’s not dead. But it is changing.
Necessity-based retail is doing fine. Grocery-anchored shopping centers, pharmacies, medical offices, banks, service uses like dental and veterinary clinics. These tenants are stable, their businesses are resilient, and landlords are finding consistent occupancy.
Enclosed shopping malls are the problem child. Foot traffic is down, anchor tenants are struggling, and smaller retailers are closing stores. Malls that haven’t adapted with entertainment, dining, and experiential elements are facing serious challenges.
Strip malls and neighborhood retail centers are somewhere in between. Well-located centers with good tenant mixes are fine. Poorly located or poorly managed centers are struggling with vacancy.
Downtown retail in major cities is recovering but slowly. The office workers who used to support lunch spots, coffee shops, and service businesses aren’t coming back five days a week. Retailers are adjusting to that reality.
One interesting trend: conversion of retail space to other uses. We’re seeing retail buildings converted to medical offices, light industrial, even residential in some cases. The highest and best use for some retail properties has changed.
For financing, lenders look at retail tenant quality and lease terms above all else. A grocery-anchored center with a 20-year lease to a major chain is easy to finance. A strip mall with month-to-month tenants and high turnover is very challenging.
Multi-Family: The Steady Performer
Multi-family residential properties continue to perform well from a fundamentals perspective.
Rental demand in Canada is strong. Immigration is driving population growth, housing affordability makes homeownership difficult for many people, and rental supply is constrained in most major markets.
Vacancy rates for rental apartments in Toronto, Vancouver, and most other Canadian cities are extremely low, often below 2%. That’s driving rent growth and supporting property values.
The challenge in multi-family is interest rates. Cap rates for apartment buildings expanded as interest rates rose, which means property values declined from peak levels even as operating performance stayed strong.
Owners who bought in 2021 or early 2022 with high leverage are feeling pressure. Their properties are cash flowing, but their equity positions have eroded as values adjusted.
Owners with longer holding periods or lower leverage are fine. The properties perform well operationally, and the long-term fundamentals for rental housing in Canada remain solid.
Lenders view multi-family as relatively low risk. Residential tenancies provide consistent cash flow, demand is supported by demographics, and government policy generally favors rental housing supply. Financing terms for multi-family are generally better than for other commercial sectors: higher LTV, lower rates, longer amortizations.
If you’re looking at multi-family investment or refinancing, you’re in a good market for debt availability.
Regional Market Differences
Let’s talk about where these trends are playing out differently across Canada.
Greater Toronto Area: All property types are active, but pricing has come off peak levels. Industrial is strongest, office downtown is challenged, multi-family fundamentals are very strong but values adjusted in 2023-2024. Transaction volume is picking up in early 2026.
Greater Vancouver Area: Similar to Toronto but more expensive on an absolute basis. Industrial and multi-family are strong. Office is struggling downtown but suburban markets are better. Limited development opportunities are constraining supply in all sectors.
Calgary and Edmonton: Office markets still dealing with elevated vacancy from past energy sector issues, but recent strength in energy is helping. Industrial is solid. Multi-family fundamentals are strong and values are more affordable than Vancouver or Toronto, attracting out-of-province investors.
Montreal: Strong multi-family market driven by relatively affordable rents and solid population growth. Office is mixed, with downtown showing more resilience than many other cities. Industrial is active.
Ottawa: Government town dynamics dominate. Office market is directly tied to federal government space requirements. Multi-family is steady. Industrial is moderate.
Atlantic Provinces: Growing population and investment interest. Property values are more affordable, cap rates are higher, but lending options can be more limited than in major centers.
What’s Driving Investment Decisions
Here’s what investors are focusing on in 2026.
Cash flow over appreciation. The expectation of double-digit annual value growth is gone for now. Investors want properties that generate positive cash flow from day one. Speculative plays based on appreciation are out of favor.
Quality of tenancy. Long-term leases to creditworthy tenants are valued highly. Properties with short-term leases or uncertain tenant quality require much higher cap rates to attract buyers.
Capital requirements. Properties that need significant capital investment are getting discounted heavily. Buyers don’t want to put money into improvements in an uncertain market.
Location, location, location. This always matters, but it matters more now. Well-located properties in growing markets are commanding premiums. Tertiary locations are getting discounted.
Financing availability. Properties that are easily financeable are worth more. If a property has characteristics that make lenders nervous, that gets priced into the transaction.
The Financing Environment
Let’s bring this back to what it means for getting a mortgage.
Commercial real estate financing is available across all property types, but terms vary significantly based on what you’re buying.
Multi-family and industrial properties are getting the best terms: 70% to 75% LTV in many cases, rates in the 5% to 6% range for five-year fixed, and lenders competing for deals.
Retail properties with strong tenants can get 65% to 70% LTV, rates in the mid-5% to mid-6% range.
Office properties are more challenged: 55% to 65% LTV, rates in the high-5% to low-7% range depending on quality and occupancy.
All of these assume good borrower credit, strong property cash flow, and major lenders. Private lending is available at higher rates and different terms if you don’t fit conventional parameters.
Opportunities in This Market
So where are the opportunities for investors and operators?
Value-add plays in multi-family and retail properties. If you can buy a property with operational challenges, improve it, and increase cash flow, there’s money to be made. The key is getting the financing to do it.
Industrial development in secondary markets. The big cities are getting expensive, but smaller cities need modern industrial space. If you can identify the right location and secure pre-leasing, lenders will finance development.
Office conversions. Older office buildings in good locations might have a higher value as residential, lab space, or other uses. The math is complex and requires creative financing, but opportunities exist.
Distressed acquisition. Some owners need to sell because they can’t refinance on workable terms. If you have equity to bring and can close quickly, you might find attractive pricing.
The Outlook for 2026-2027
Looking ahead, here’s what seems likely.
Transaction volume will continue to increase as buyers and sellers find price discovery. The disconnect between bid and ask has narrowed. More deals will get done.
Office fundamentals will remain challenging, but we’ll see differentiation between quality and location. The best buildings will do fine. Marginal buildings will struggle or change use.
Industrial will stay strong, though rent growth might moderate from the high rates of recent years.
Multi-family fundamentals will remain solid, supported by demographics and limited ownership affordability.
Retail will continue to split between necessity-based properties that perform well and discretionary retail that faces ongoing challenges.
Financing will stay available but selective. Lenders will continue to favor cash-flowing properties with quality tenancies.
Work With Specialists Who Know the Market
Commercial real estate financing requires understanding current market conditions, lender appetite, and how to position properties for the best terms.
At Creek Road Financial Inc., we work with commercial property owners and investors across Canada. We know which lenders are active in which property types, how to structure deals to maximize financing, and how to navigate challenging situations.
Whether you’re acquiring property, refinancing existing debt, or looking to fund improvements, we can help you understand your options and secure competitive financing.
Let’s talk about your commercial real estate financing needs. We’ll review your property, discuss your goals, and find a financing solution that works.