Since the pandemic, financier appetite for workplace properties has actually dropped substantially as an outcome of the increased uncertainty around offices. Have downtowns been changed forever? When will workers go back to the workplace? What are office complex worth?As an outcome of that uncertainty, office sales as a percentage of all commercial realty deal volume dropped to around 17% by 2025, while other sectors like industrial and multi-family saw increases to 38% and 27%– a combined two-thirds.
“Raised job, nontransparent prices, and the lack of clearness around the future of office demand pressed many institutional participants to the sidelines,” said Avison Young in a recent office investment analysis. “However that dynamic is now starting to move.”
In Q1 2026, office deals represented 19% of overall sales volume, which is still below the 26% from the 2014-2019 cycle, however an improvement.There are likewise indications
that this cycle is a bit various, as the flight-to-quality trend seen with leasing is likewise taking type when it pertains to sales.
“Because 2025, Trophy office sales represented 25% of the overall square video and 39% of the total dollar volume of workplace sales in Canada,” states Avison Young President Mark Fieder. “This is up significantly from the duration 2014 to 2019 and obviously a major increase when compared to 2020 to 2024. This supports the narrative of institutional office investors narrowing their focus to core assets with a sustainable competitive advantage to enhance their offering to occupiers.”
According to Avison Young, the office market is now defined by”a noticable and relentless bifurcation in possession quality” in between the trophy section– more recent, Class AAA and An office buildings downtown– and the value-add section– Class B and C– and this divergence is expected to persist, both in regards to renting speed, lease growth, and financier invest.
“After several years of hybrid work, the link between workplace quality, staff member engagement, and performance is now widely acknowledged by occupiers,” stated Avison Young. “Workplace is no longer dealt with as a product, but as a strategic tool to attract and maintain skill.”
“As an outcome, need has become progressively concentrated in best-in-class buildings offering modern design, strong amenity packages, and compelling areas, while unrenovated or improperly located assets continue to underperform,” they added.From a vacancy rate viewpoint, Avison Young keeps in mind that there are significant divergences across different classes. The national downtown job rate is 21.3%for Class B buildings, 15.3% for Class A structures, and simply 6.7 %for prize Class AAA structures. Therefore, overall vacancy metrics are no longer useful and” [mask] how tight leasing conditions are for best-in-class space.”< img alt= ""height=" 1266 "src ="// www.w3.org/2000/svg'%20viewBox='0%200%201924%201266'%3E%3C/svg%3E"width='"1924"/ > Another reason behind the bifurcation is elevated building and construction costs, which become a considerable factor when it comes to fitting out areas for tenants.”Raised occupant expectations are translating into increasingly sophisticated and expensive office fit outs, materially raising the capital strength of ownership,”Avison Young observed.”Construction expense inflation and greater style requirements have driven larger occupant improvement allowances, particularly amongst bigger occupiers for whom high quality construct outs are vital to support go back to office efforts.””While these allowances permit owners to preserve face rental rates, not all owners have the financial capability to fund substantial
capital programs over extended leasing cycles,”they discussed.”This difficulty is likewise widespread among workplace financial investment sales. Significantly expensive capital expenditures have posed headwinds to demand for vintage or typically undercapitalized properties.””Absorption flattened for the first time considering that 2020, while flight-to-quality patterns enhanced. Trophy possessions in significant downtown cores are now seeing job near 6%, supported by improving leasing momentum and minimal competitive supply. Along with moderating financing conditions, financier confidence has returned. “