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JANUARY 2026
Commercial Real Estate in Canada – January 2026 Edition
Mercana 2026 Canadian Real Estate Outlook
At a holiday gathering this winter, I noticed something striking: many younger real estate staff had never experienced a market downturn. Some friends working for subcontractors and consultants were baffled that their invoices were being paid slower – or not at all – as projects stalled. It was a stark reminder that the tides have turned in Canadian commercial real estate. After years of boom, 2026 will demand skillful navigation of a more cautious market.
Yet, with challenge comes opportunity. As experts in repositioning underperforming assets, we've seen cycles come and go. We can prepare for what’s next. Below are eight key predictions for 2026 in Canada’s real estate landscape – what issues to watch and why they matter for investors and property owners. Let’s dive in, with a quick-hit outlook across all asset classes:
1. Tech Under Scrutiny: AI & Data Centres Face Pushback
Prediction: The shine of tech-powered real estate is dimming as communities and policymakers grow wary. Just as in the US, Canada is seeing increased scrutiny on AI facilities and data centres – not for Terminator-style reasons, but very practical ones: power and perception. British Columbia moved to limit the power available for new AI data centres and will ban energy-hogging crypto mining projects. Ontario is following suit, with new rules to prioritize only those data centre projects that bring high-quality jobs and local benefits. The message is clear: massive server farms that suck up megawatts while creating few jobs are no longer welcome without question. AI itself has captured public imagination but also fear – fear that it offers “job loss and more billions for billionaires”, as one tech insider quipped. Regulators have picked up on this sentiment. Expect tougher approval processes for data centre developments and potentially new regulations around AI and big tech investments.
Why it matters: If your 2026 real estate strategy involves tech infrastructure (be it a data centre conversion or leasing to an AI startup), prepare for heightened scrutiny and longer timelines. Projects may need stronger community relations and green credentials to pass muster. Tech firms will also need to craft a better narrative about local benefits, or risk facing moratoriums akin to those in BC. The upside? Canada’s reputation for stability is attracting investors seeking safe havens – but only for projects that align with community and political expectations.
2. Multifamily: Short-Term Gloom, Long-Term Demand
Prediction: After a decade of exuberance, Canada’s apartment sector hits a rough patch in 2026. Rents and occupancy will stay soft in many markets as a wave of new supply collides with economic reality. Developers in the last few years switched from condos to rentals, resulting in the highest number of apartments under construction in 50 years. Now a glut of recently completed, high-rent units sit on the market, and some unsold condos are lingering as shadow rentals. In Calgary, a record 10% jump in rental stock last year pushed vacancy from 1.4% to 4.8%. Toronto and Ottawa tell similar tales, with rent growth stalling and even modest declines in the priciest segments. Contributing to this is a slight pullback in immigration growth (new federal rules are set to slow the influx of non-permanent residents, meaning demand isn’t infinite after all. The housing supply overhang could take a while to clear – Co-Star Canada estimates it may be 6-9 years before all the excess condo inventory is absorbed. The good news? Canada’s housing shortage hasn’t magically resolved; it’s just taking a breather. By 2027 we should see equilibrium restored as population growth eventually resumes its pace and fewer new projects launch now.
Why it matters: Owners and investors in multifamily should brace for a challenging 2026 – lease-up campaigns will need sharper incentives and realistic rent targets. Those who underwrote deals with rosy 2022 assumptions may need to restructure or inject more equity. Cap rates for apartments could inch up as institutional buyers re-price risk, especially if interest rates stay higher for longer. However, this lull also offers a chance to strategize for the future: picking up distressed condo projects on the cheap or repositioning older rentals to compete while the luxury segment is in flux. Patience will be key; the long-term Canadian housing fundamentals (high immigration, low supply) still point upward once this cyclical oversupply clears out.
3. Office: A Cautious Comeback
Prediction: Don’t count the office out just yet. 2024 and 2025 were rough for office landlords, but 2026 will continue a slow, uneven recovery. We’re already seeing signs of life. Office leasing revenues in Canada jumped sharply in late 2025 as more tenants poked their heads out of the bunker. It turns out that when companies started mandating at least a few days back in the office, many realized they had cut too much space and are now scrambling to secure quality offices in case everyone shows up. The flight-to-quality trend is real: tenants are prioritizing (and paying for) well-located, amenity-rich buildings with good air, light, and transit access. In fact, trophy office towers in major cities are largely full, and even secondary assets are seeing activity pick up. Vancouver, for instance, now boasts one of the lowest office vacancy rates in North America thanks to its limited supply and strong tech and media base. Toronto landlords report that Q3 2025 leasing velocity hit a multi-year high as big deals at marquee towers (think Royal Bank Plaza or CIBC Square) got done. New supply is at a 20-year low, which is the unsung hero of this recovery – with few new offices coming, any uptick in demand has an outsized impact on tightening vacancies. Even Calgary, Canada’s problem child for offices, is finding a footing: savvy investors and the city have teamed up to convert aging office blocks into apartments and hotels - over 20 buildings and counting in Calgary’s conversion program, gradually whittling down that glut of empty space.
Why it matters: If you own or operate office buildings, 2026 offers a window to get ahead of the rebound. Upgrade and “amenitize” your properties now – the market is bifurcating, and quality will win. Older, poorly located offices will continue to struggle (and should be high on your repositioning or disposition list), but the better assets can finally start regaining pricing power.
Tenants: Lock in favourable long-term leases early in the year, before the pendulum swings too far back to landlords.
Investors: There may be a once-in-a-cycle chance to buy decent office assets at distressed prices now, renovate them, and ride the recovery. Just be selective and underwrite generously for future capex – today’s tenants want modern, green, and engaging workspaces, not your 1990s cubicle farm. The office isn’t dead; it’s just getting reinvented.
4. Retail & Mixed-Use Resilience
Prediction: Brick-and-mortar retail enters 2026 with a surprising spring in its step. Malls and shopping strips were supposed to be doomed in the e-commerce era, but reality says otherwise. Canadian retail sales held up in 2025 despite inflation, and retailers are adapting. We’ve seen failed tenants cleared out and replaced by stronger concepts – often with a savvy mix of physical and digital presence that works better than ever. Crucially, new retail supply is very limited, which has kept vacancy in check and given landlords some breathing room. Rents across most of the country are flat or even ticking up slightly, a far cry from the apocalypse pundits predicted. The strongest segment remains grocery-anchored centres – these “daily needs” hubs continue to offer the best liquidity and investor interest of any asset type. Even the much-maligned enclosed malls have shown resilience: over the past three years, 11 major mall properties traded as buyers see value in repositioning them - who would’ve thought in 2019, when you “couldn’t give away” a mall! A big boost for urban retail is the return-to-office movement. Downtown foot traffic is rising again as office workers reappear, benefiting coffee shops, lunch spots and service retailers in core business districts. Meanwhile, in the suburbs, population growth (though slower, still positive) means power centres and new neighborhood plazas in growing communities are doing just fine. We also anticipate more mixed-use development: turning old retail-heavy sites into experience-rich destinations (think malls adding condos, offices, clinics, gyms, community spaces). This trend is breathing new life into retail real estate by diversifying income streams.
Why it matters: The takeaway for 2026 is cautious optimism in retail. If you’re a retail landlord, keep nurturing the mix of tenants – experiential and essential retail can drive traffic for each other. Consider redeveloping excess parking or adding apartments/offices to create true mixed-use value (and tap new financing sources). Retailers should seize favourable rents now in recovering downtowns or expanding suburbs. Investors, note that retail’s narrative has flipped: well-located shopping centres are once again seen as stable cash flow generators, not pariahs. The key is curating the right tenant mix and leveraging technology (loyalty apps, click-and-collect) to boost sales. In short, reports of retail’s death were greatly exaggerated – in 2026, smart retail is very much alive.
5. Industrial: Stabilizing After the Boom
Prediction: The industrial real estate juggernaut finally took a pit stop – and that’s a healthy thing. For years, Canada couldn’t build warehouses fast enough; vacancy rates fell to record lows (under 1% in Toronto and Vancouver at points) and rents skyrocketed. By late 2024, the script flipped. New supply hit the market just as tenant demand eased - partly due to a slowing economy and overstocked inventories in e-commerce. The result: vacancies in logistic facilities inched up, and rents have pulled back slightly from their peak highs. But don’t misunderstand this as a crash – it’s more of a plateau. In fact, some markets may have already bottomed out: Vancouver’s industrial vacancy has likely hit its high-water mark and is starting to edge down again, and Toronto’s industrial market is expected to stabilize in 2026. Nationwide, warehouse utilization is improving as businesses adjust their supply chains, and sectors like manufacturing and 3PL (third-party logistics) are still expanding.
One emerging constraint: infrastructure (especially power capacity). Large modern warehouses and data-centre-like industrial users need significant electricity, and in places like Southwestern Ontario, the grid is having trouble keeping up. This could slow down new construction (a blessing in disguise to prevent oversupply). By late 2026, if the economy firms up, we expect industrial demand to outpace new supply again, gradually tightening vacancies. Also, watch for a resurgence of development in 2027 once developers see solid footing – current construction has dropped from the 2022 peak, but the long-term need for industrial space (for goods delivery, cold storage, EV manufacturing, you name it) is undiminished.
Why it matters: Industrial properties remain the darlings of commercial real estate, even with a brief lull. For owners, this is a chance to firm up operations: implement energy efficiencies, perhaps install solar panels or other cost-savers, and lock in tenants on longer leases while concessions are minimal. For occupiers, you may have a bit of choice now – upgrade to that new facility with higher clear heights or better highway access while landlords are willing to negotiate. Investors should stay alert for any distressed sales of older industrial or land; fundamentals will likely strengthen beyond 2026, so acquiring during this plateau could yield great returns. Just be mindful of location quality – proximity to transport infrastructure and labor pools is still paramount. Overall, industrial real estate in Canada is catching its breath, not losing its lead.
6. Autonomous Vehicles on the Horizon
Prediction: Self-driving cars and trucks are moving from sci-fi to inevitability, and Canada is quietly gearing up. While 2026 won’t see robo-taxis flooding our streets, we’ll edge ever closer. Ontario, for one, launched a 10-year pilot program to test automated heavy-duty trucks on highways – a sign that governments want to harness AV technology for freight and logistics. Companies are making rapid strides in vehicle AI, and data from U.S. trials suggest these vehicles could already be an order of magnitude safer than human drivers. We anticipate that by late 2026, at least one Canadian city will approve a limited autonomous shuttle or taxi pilot in traffic (perhaps Montreal or Toronto, following the lead of Phoenix and San Francisco). The AV revolution promises to reshape mobility: imagine expanded “commutable frontiers” around cities as people can work or relax during longer autonomous drives from affordable far suburbs or rural areas. Weekend getaways two hours away might not feel so daunting when your car can drive you overnight. And if robots handle more trucking, distribution networks and industrial location decisions might shift (for example, distribution centres could be placed further out, with AV trucks making efficient off-peak deliveries).
Why it matters: Real estate strategies should start accounting for AV impacts – even if full adoption is a few years out. Parking requirements for new developments might be rethought: future residents or hotel guests may not need massive parking garages if autonomous ride-hailing becomes common. Urban retail and hospitality could see a boost in accessibility (patrons can travel more easily without driving). Conversely, properties like gas stations face a long-term threat – AV fleets will likely be predominantly electric, accelerating the need for EV charging infrastructure. Suburban office parks or residential communities might become more attractive if commuting is less of a chore. While none of this hits cash flows in 2026 directly, the perceived inevitability of AV's will start influencing investor sentiment. Progressive owners will look at adding EV chargers, drop-off lanes, and flexible space that could convert parking to other uses. This year, keep an eye on policy developments: any city or province greenlighting AV-friendly regulations could suddenly become a magnet for tech investment (and real estate activity to support it). The bottom line – prepare now for a driverless future in real estate design and location choices, or risk playing catch-up later.
7. New Capital Models Emerge (Merchant Banking & Mid-Market Focus)
Prediction: In 2026, the way deals get funded in Canada will continue to shift in creative ways. Traditional institutional capital (think big pension funds and life cos) spent recent years mostly doubling down on large, low-risk deals with brand-name managers. But with the mega-fund model delivering more beta than alpha lately, we expect large investors to rediscover the “middle market.” In practice, that means a giant pension fund might not just write another ticket to a Blackstone or Oxford Properties fund – instead, they could seek out niche operators and joint ventures in specific markets or sectors where returns are juicier. We’re already seeing private capital step up to bridge the bid-ask gap in transactions: family offices, private REITs, infrastructure funds, and debt funds are deploying money to fill the void left by cautious banks and REITs (costargroup.com). One interesting trend is the rise of a modern “merchant banking” approach in real estate. Talented pros who cut their teeth at big firms are striking out on their own, not to raise giant blind pool funds (tough in this climate), but to act as deal sponsors with in-house capital. They partner with high-net-worth investors or smaller institutions on a deal-by-deal basis, effectively serving as both operator and investment banker for each project. In Canada’s context, this might mean a former REIT executive assembles a group to acquire and reposition a troubled portfolio, offering their expertise and some seed capital to get it done. These hybrid models bring flexible equity to markets that need it – whether it’s a rental development missing mezzanine financing, or a turnaround of a foreclosed asset where quick action is needed.
Why it matters: Access to capital – or lack thereof – will define who can seize opportunities in 2026. If you’re a quality local operator with a solid business plan, don’t assume the only route is the traditional LP equity or bank loan. There are new financing partnerships out there willing to consider creative structures (preferred equity, private debt, JV equity with profit-sharing) to get deals done. Owners in distress (or on the edge) should know that rescue capital is likely available – but it will be savvy and demand its pound of flesh (i.e. a good return for the perceived risk). For big investors, dipping back into smaller deals means doing your homework on sponsor quality; but those who do could finally see the kind of returns that got arbitraged away in the big core funds. Overall, capital in 2026 is a bit like water finding cracks – it’s starting to flow around traditional dams and into new channels. Mercana is tuned into this shift and can help clients tap into these emerging capital sources to keep projects moving.
8. From Sponsor to Platform: An Industry Evolves
Prediction: The Canadian real estate industry is undergoing a mindset shift: the best operators no longer see themselves just as deal-by-deal “sponsors” but as scalable platforms. In an environment where alpha increasingly comes from operations, investors and owners are valuing things like steady cash flows, tenant satisfaction, and operational efficiency more than just paper IRRs. What does this mean? Real estate firms are professionalizing and diversifying. A multifamily owner, for example, might build an in-house property management arm that also leverages tech for tenant services, turning it into a reliable income stream and a competitive advantage in leasing. An office developer might create a flexible workspace brand under its umbrella to adapt to changing tenant needs. These firms are aiming to be ongoing businesses with enterprise value, not just a collection of properties. We anticipate that in 2026, more private real estate companies will seek private equity-style investments or strategic partnerships that value their platform attributes (revenues, EBITDA, technology, brand, etc.) rather than just their assets under management. Public markets may also reward this shift – Canadian REITs and real estate operating companies that demonstrate growth in funds from operations (FFO) and efficient operations could see stock outperformance. Essentially, the industry’s language is changing: instead of bragging solely about the latest building sale at a high multiple, CEOs are talking about customer retention, Net Promoter Scores, and margin improvement across their portfolio.
Why it matters: If you’re an investor, look beyond the pro forma of the next deal and evaluate the sponsor’s platform capabilities. A strong platform can weather storms (and maybe command a higher multiple on exit or even go public). If you’re a sponsor/operator, this is the time to invest in your organization – upgrade your tech, streamline processes, and build a brand around your expertise (be it in seniors housing, self-storage, or mixed-use development). Those who do will find it easier to attract both capital and opportunities. This trend also hints at new exit options: your end game might not just be selling buildings one by one but selling your platform (or taking on a strategic partner) at a lucrative valuation. In 2026, the players who think like entrepreneurs scaling a business – not just trading real estate – will stand out. The market is starting to differentiate real estate operators not by the deals they’ve done, but by the companies they’ve built.
Navigating 2026: Mercana Can Help
The year ahead promises both opportunity and uncertainty. The overarching theme is balance – cautious optimism. Canada’s economy is projected to grow modestly - around 1%, not a recession but not a boom, and slightly stronger in the latter half of the year if all goes well. Interest rates are lower than last year and likely to stabilize, which should gradually ease pressure on real estate finances – though as Co-Star noted, don’t bank on a big boost from cheap debt just yet. In short, it’s a year to be proactive: address your property’s weaknesses, capitalize on its strengths, and make sure you have a strategy for both upside and downside scenarios.
We pride ourselves on being problem-solvers with deep experience across cycles. We don’t just talk; we do what we say – and deliver results. Our team can review and position your property to withstand any storm, whether that means re-tenanting a struggling asset, cutting operating costs, or finding new revenue angles. We work behind the curtain on complex situations like receiverships and re-financings, bringing discretion and expertise to turn around troubled projects. We’ll even work hand-in-hand with your board to ensure compliance and transparency, so that stakeholders stay confident through turbulent times. 2026 may feel uncertain, but with the right strategy it can be a year of growth and resilience for your portfolio.
Don’t wait for the market to force your hand. Whether you own a single property or a national portfolio, now is the time to position yourself for the changes ahead. Reach out to Mercana for a strategic consultation on your real estate holdings. We’ll help you navigate the predictions above – and turn challenges into opportunities. Here’s to a successful 2026, and we look forward to partnering with you in the journey ahead.
Mercana is here to help you weather the storm and plan for future success.
Tough markets reward experience. Mercana’s team of over 200 senior associates knows how to cut through noise and act. Whether it’s navigating CMHC shifts, sourcing alternative capital, or reassessing portfolio strategies—we help clients stay ahead of the curve.
We help you anticipate risk—not react to it.
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Source: airdberlis.com, cbre.ca, costargroup.com, pwc.com, mpamag.com, alternativeswatch.com, electricautonomy.ca, capitalmarkets.bmo.com
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