Canada’s retail real estate markets are expected to remain tight in 2026, with strong demand for high-quality space supporting rents and income performance, according to a new outlook from Morguard Corporation that points to gradual stabilization across the country’s broader commercial property sectors.
The assessment comes from Morguard’s 2026 Canadian Economic Outlook and Market Fundamentals Report, which reviews conditions in 2025 and outlines investment and leasing trends expected to shape the year ahead. The report suggests that while economic growth is likely to remain modest, easing borrowing costs and improving lending conditions could support increased investment activity across retail, industrial, office and multi-suite residential real estate.
Retail sector remains supply-constrained
Morguard said high-quality retail space remained in short supply in Canada’s most productive centres and shopping nodes through the end of 2024 and into 2025. Vacancy levels held at what the company described as healthy levels nationally, particularly in community and neighbourhood formats, allowing landlords to achieve strong rents for well-located, high-quality space.
The report said supply constraints in most major markets are expected to persist, keeping conditions tight and supporting resilient rental and income performance in the retail sector.
Broader commercial markets show signs of stabilization
Beyond retail, Morguard’s outlook points to generally healthy conditions in the industrial sector, gradual stabilization in multi-suite residential rentals and an improved outlook for office markets.
“Canada’s economy shifted into a lower gear in early 2025 as U.S. tariffs and global trade tensions weighed on growth and business confidence,” said Angela Sahi, president and chief executive officer of Morguard. “Even in this slow-growth environment, high-quality real estate has continued to demonstrate resilience, supported by stable income performance and a steady flow of private capital into well-located, stabilized assets.”
The company said Canada’s economy is expected to grow at a relatively slow pace in the near term, with modest growth projected for 2026. Despite that backdrop, investment capital continued to flow into Canadian commercial real estate in 2025, particularly toward stabilized assets in the retail, industrial and multi-suite residential sectors.
Looking ahead, Morguard said the flow of capital into commercial property is expected to increase as borrowing costs ease, lender appetite improves and financing availability rises.
Industrial and office outlook improves
Industrial leasing fundamentals remained relatively healthy in 2025, even as new supply increased availability in several markets, the report said. Investment sales activity steadied, with quality logistics and warehouse assets continuing to trade at what Morguard described as a healthy rate. For 2026, the sector’s outlook is expected to remain favourable, supported by stable demand, moderating availability and income-driven performance.
The office market also showed signs of improvement, driven by return-to-office mandates from major financial institutions and the public sector. Morguard said building occupancy increased as more employees returned to physical workplaces, with demand particularly evident for high-quality, efficient space offering attractive amenities. Investors are expected to continue focusing on trophy assets, high-quality Class A buildings and value-add or conversion opportunities.
“We’re beginning to see the signs of renewed momentum across Canada’s major commercial property sectors,” said Keith Reading, senior director of research at Morguard. “Industrial and retail assets continue to post healthy fundamentals, and multi-suite residential demand is expected to firm as the economy stabilizes. As lending conditions improve, investors will increasingly re-engage with opportunities that offer stable and increasing income streams and long-term growth potential.”
Multi-suite residential rental market
Morguard said Canada’s multi-suite residential rental market softened in late 2024 and 2025 as weaker rental demand coincided with a notable increase in new supply. Despite that, buyers remained confident in the asset class, citing its income-driven stability and positive medium- to long-term outlook. The company said demand for multi-suite residential rental properties continues to exceed supply.
The report projects that rental fundamentals will gradually stabilize as modestly stronger economic growth and improving youth employment in the latter half of 2026 support firmer demand. As conditions improve, vacancy is expected to stabilize, landlord incentives are projected to ease and asking rents are expected to level off as the market moves toward a more balanced environment through 2027.
Economic backdrop and investment trends
Morguard said Canada’s economy slowed in 2025 as trade tensions with the United States, including tariffs on certain Canadian exports, weighed on growth, employment and confidence. While growth is expected to remain modest in 2026, the report anticipates that easing trade tensions could support improved business sentiment and investment activity.
Despite the slow-growth environment, the company said investment capital continued to flow into Canadian commercial real estate at a consistent rate in 2025, particularly toward high-quality, stabilized assets.
The report highlights the following expectations for 2026:
- Demand for multi-suite residential investment properties is expected to gradually stabilize as fundamentals firm by the end of 2026.
- Investor confidence in the industrial sector will remain strong, supported by healthy fundamentals and improving lending conditions.
- Canada’s retail leasing market is expected to remain tight, with strong demand for high-quality space driving retailer expansion.
- Canada’s economy is expected to grow modestly in 2026, given a projected easing of trade tensions while investment activity gains momentum.
Report details
The 2026 Canadian Economic Outlook and Market Fundamentals Report is Morguard’s 28th annual edition and provides an analysis of 2025 real estate market performance along with trends to watch in 2026. The report includes market analysis for Halifax, Montreal, Ottawa, Toronto, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver and Victoria.
Morguard Corporation is a Mississauga-based real estate investment company listed on the Toronto Stock Exchange under the symbol MRC. As of Sept. 30, 2025, the company’s owned and managed portfolio of assets was valued at $19.0 billion.
More from Retail Insider:
