The financial services sector provides dual momentum for Canada’s resurgent office market. As a tenant, it’s ramping up demand for space. As a lender, it’s loosening access to capital and easing uncertainty that has kept investors on the sidelines.
Recently released findings from CBRE Canada’s annual survey of lenders’ intentions for commercial real estate show a marked turnaround in attitudes from earlier in the decade. Respondents — representing 47 financial entities that collectively hold more than $200 billion worth of Canadian commercial real estate loans — ranked downtown Class A office as one of their most favoured asset sub-classes among 22 possible choices, while downtown Class A and B and suburban Class A office recorded the most positive gains in perception relative to their 2025 rankings.
That’s seen in the 45 per cent of survey respondents who plan to increase their loan books for office in 2026 — an intention that just 7 per cent of participating lenders indicated in 2025 and none committed to in 2024. While 93 per cent of respondents decreed that office posed an elevated credit risk on refinancing in 2024 and 71 per cent offered that opinion in 2025, just 32 per cent voiced such reservations this year.
“From zero to hero. Lenders are ready to support the asset class again,” Joshua Sonshine, a senior vice president with CBRE Capital, observed in late February, as he presented an overview of the survey results in conjunction with the Real Capital conference in Toronto. “It’s tied directly to improving market and cashflow fundamentals, most notably renewed leasing momentum and a steady reduction in vacancy.”
Lenders, investors and real estate operators link their optimism to a leasing uptick. That’s coming through in both hard data for vacancy rates and anecdotal evidence.
“Looking across our portfolio, tour activity is absolutely up. The number of RFPs in the market are absolutely up. We’re signing more deals,” Scott Gordon, head of asset management with Manulife Investment Management, told attendees on hand earlier this winter to learn how institutionally held assets in the MSCI REALPAC Canada Property Index performed in 2025.
Primed for capital growth
Those results confirmed a positive average total return (2.1 per cent) across the office assets in the index for the first time since 2021. Office was the second best performer of the four core asset sub-classes measured, ahead of retail and multifamily residential, after consistently bottoming out the field from 2021 to 2024. Peter Koitsopoulos, vice president, real estate client coverage with the index producer, MSCI, also attributed Toronto’s regional outperformance of Montreal to its “office-heavy” profile.
“One thing I want to stress here is that the capital values are still negative, but the income return story has improved for office,” he said.
Across the broad index, the average office value has been in decline for six consecutive years, with drops in the 10 per cent range in both 2022 and 2023 and a further 5.5 per cent reduction in 2024. Average value nudged down an additional 3.4 per cent last year.
Industry insiders participating in a panel discussion alongside the release of the lenders’ survey results suggest the conditions are right for a reversal of that trend, although, for now, that’s most noticeable for Class A assets in select markets like downtown Toronto and Vancouver. Kevin Leon, founder and president of Crestpoint Real Estate Investments, cited a combination of factors including the leasing uptick in the third and fourth quarters of 2025, unsettledness in equities markets that had previously been “on fire” and business leaders shaking off a prolonged period of decision-making inertia following the COVID 19 pandemic.
“I think the capital markets turned for office four to six months ago. We see the fundamentals getting better and now, with a little bit of volatility in the equities market, people are saying hard assets are where it’s at,” Leon mused. “There are more positive assumptions going into underwriting in the office market today than there have been in the last four years, and that’s where you see buyers step up and say: I’m at the cusp of something that’s really going to take off.”
In Toronto, where the downtown Class A vacancy rate eased from 16.7 per cent in December 2024 to 12.1 per cent at year-end 2025, more buildings now qualify for better financing. That’s because lenders typically rely on the most conservative baseline — either the actual vacancy or the broader market vacancy — when they calculate a building’s potential net operating income (NOI).
“Vacancy is not just a market statistic; it is a central input in every lender’s underwriting model. During the height of uncertainty, even a fully leased building could not escape the drag of high market vacancy. For an office building that is 100 per cent occupied, a 460-basis-point decline in (market) vacancy can swing the underwritten NOI meaningfully,” Sonshine explained. “As vacancy continues to fall and leasing activity continues to strengthen, lenders’ underwriting assumptions are significantly improved. With stronger NOI comes better debt service coverage, more deals pencil, more capital flows and more confidence returns to the office sector.”
Few expect the renewed influx of capital will be channelled to new development, but corporate egos and a scarcity of Class AAA space could spur some action if investors have pre-leasing assurances.
“I do think there will be a value proposition (for developers) for a larger tenant that wants its name on a new building. We’ll see something like that in Toronto or Vancouver,” Leon hypothesized. “I don’t think you’ll see buildings built on spec for four or five years or perhaps longer.”
Appetite for acquisitions and upgrades
In the interim, existing office stock could harbour some outsized returns on investment. Institutional investors theorize that the timing is right to “find alpha” in competitively priced assets with the potential to command higher rents, but it will likely take savvy management and strategic capital expenditures to extract them.
Gordon acknowledged Manulife is “still kind of fighting in the trenches” to lease Class B buildings, but he sees a definable pocket of demand that can grow in step with other segments of the market. Meanwhile, older Class A buildings are already reaping positive spillover from tighter availability within trophy assets, and early bird shoppers aren’t likely to encounter a lot of competition for product.
“There are some great deals to be had, but those landlords who are still over-allocated to office, they’re probably going to stay on the sidelines for awhile until they rebound,” Gordon said. “For asset managers, it’s a question of how are you going to get the economics? How are you going to amenitize your building? Amenitzing your building is different if it’s a B versus an A.”
Leon likewise advised targeting the needs of prospective tenants. “You want tenants to come into the building and feel good about where they are, but you have to read the value proposition because that could mean different things,” he said. “Some of it could be services and amenities. Some of it could be purely on costs.”
For investors with a deep retrofit in their value proposition, the news isn’t necessarily upbeat on the financing front. For 2026, 37 per cent of surveyed lenders said they would offer tighter credit spreads for loans with strong sustainability metrics, representing a 4 per cent decrease in willing lenders from the previous year. Additionally, in 2025, 19 per cent of respondents indicated that they planned to begin offering spread discounts for sustainability “in the near future”, but only 5 per cent made that pledge this year.
This year, about 20 per cent of lenders are prepared to offer spread discounts of 5 to 9 basis points (bps) for sustainability and 17 per cent would tighten credit spreads by less than 5 bps. Last year, roughly 27 per cent indicated they would offer sustainability-related spread discounts of up to 9 bps; 12 per cent promised 10 to 14 bps; and about 3 per cents said they would convey discounts of 15 to 19 bps.
Just 8 per cent of surveyed investors perceive that a building’s carbon footprint currently affects the availability and terms of financing, even though 17 per cent expressed that opinion in 2025. Correspondingly, 20 per cent of respondents do not foresee that a building’s carbon footprint will ever be a factor in loan availability or terms — up from the 11 per cent of respondents who held that view in 2025.
Nevertheless, lenders specializing in sustainable finance flag office building retrofits as a potential growth area. Speaking at a recent seminar sponsored by the Canada Green Building Council (CAGBC), Melissa Menzies, director of sustainable finance with Scotiabank, reported continuing high demand for green bonds from Canadian institutional investors. As well, her bank and others of Canada’s big six now offer blended loan rates with Canada Infrastructure Bank, which extend more preferential rates based on delivery of greenhouse gas (GHG) emissions reductions.
“There isn’t as much net new green buildings being built across a variety of asset classes. Obviously, office has been a bit of a challenging asset subclass where we’re seeing a slower development pipeline, but still see opportunities to enable emissions mitigation and reduce energy use within existing buildings,” Menzies observed. “Once we have some tangible case studies, and we can show a lot of these financial metrics across different geographies and make the business case by example, I think that’s going to be a really big topic for the next five years.”
