Office market confidence returns as investors prioritize quality, Avison Young reports

Canada’s commercial real estate market weathered economic headwinds in Q3 2025, as investors doubled down on high-quality assets and signaled renewed optimism for the office sector, according to Avison Young’s latest cap rate report.

“The recent move by corporate Canada and our major banks in bringing employees back to the office marks a shift in everyday life rhythms for many, revitalizing office leasing activity and bolstering downtown retail sector activity,” Mark Fieder, principal and president of Avison Young Canada, said.

“Employers’ reassessment of office space needs over the last year has clearly benefited occupancy levels of well-located, transit-accessible buildings with strong amenities. With the improvement in leasing fundamentals combined with better credit terms, office assets are starting to get the attention of a broader section of the buying set.”

Cap rates edge higher amid caution

Avison Young’s Q3 2025 survey found benchmark cap rates for downtown Class A office assets at 7.05%, with suburban Class A at 8.10%.

Multi-residential cap rates ranged from 4.35% to 4.70% in urban and suburban markets, while industrial assets saw cap rates between 5.90% and 6.35%.

Retail cap rates for neighbourhood strip malls averaged 5.80%.

“Canada’s real estate investment market remained active for well-positioned assets. As investor scrutiny intensified, capital was increasingly directed toward properties that met higher standards in terms of performance and resilience,” Matthew McWatters, principal and managing director at Avison Young, said.

Private capital leads, multi-residential and industrial in focus

Private investors drove 48% of large acquisitions in Q3, outpacing institutional buyers and REITs.

“The market remained watchful in the face of economic and political shifts, but despite any uncertainty, leasing conditions and investment parameters generally remained healthy, even more so for quality assets,” Richard Chilcott, principal at Avison Young, said.

Multi-residential investors targeted well-managed, affordable “vintage” apartments, with a national average cap rate of 4.50%.

“We continue to see strong interest in our market, led by private buyers, for well-maintained vintage apartments with affordable rents and significant rental upside,” Carey Buntain, principal at Avison Young, said.

Industrial assets remained resilient, accounting for 33% of total sales in the first half of 2025.

“Investors were valuing stability—assets with consistent cash flow, longer lease terms, and strong tenant covenant,” Shannon Sawicky, principal at Avison Young, said.

Retail faces shifting consumer sentiment

Retail properties with necessity-based tenants continued to attract capital, but consumer confidence showed signs of strain.

“Investor demand continued to overrun the supply of mid- to high-quality income-producing retail assets in healthy primary, secondary, and tertiary markets,” Cameron Lewis, principal at Avison Young, said.

Source: Canadian Mortgage Professional