At Freeway Real Estates Inc., we closely monitor the economic forces shaping Canada’s commercial property market. The ongoing trade tensions with the United States are no longer confined to trade-sensitive industries like manufacturing and logistics — their impact is spreading into professional office-using sectors. This dynamic is beginning to stall Canada’s office leasing recovery, while industrial real estate, once considered a safe haven, is also showing signs of strain.
A Growing Wave of Job Losses
According to Statistics Canada’s Labour Force Survey (August 2025), the country shed 66,000 jobs in August, following 41,000 jobs lost in July. The national unemployment rate rose to 7.1%, the highest in nine years outside of the pandemic.
Key industries under pressure:
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Professional, Scientific & Technical Services: −26,100 jobs (largest monthly sector decline)
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Transportation & Warehousing: −22,700 jobs
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Manufacturing: −19,200 jobs
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Finance, Insurance, Real Estate & Leasing: −2,800 jobs
Meanwhile, construction added 17,000 jobs, underscoring the uneven impact across sectors.
Office Leasing at Risk
Office-using employment is a leading driver of demand for office space. After steady resilience through early 2025, the August jobs report revealed cracks: job losses in professional services, finance, and tech are now weighing on leasing momentum.
As a result, office leasing volume is projected to slow to 2.5 million square feet in Q3 2025 — the weakest pace since the early pandemic, and far below the 6–8 million sq. ft. per quarter needed to restore balance.
The chart illustrates how leasing activity (blue bars) moves in tandem with office employment growth (orange line). With job growth now stalling, leasing volumes are sliding back toward pandemic-era lows.
With new office completions scheduled for delivery this year, vacancy rates are expected to climb, extending the recovery timeline.
Industrial Real Estate: From Resilient to Slowing
While industrial was the outperformer during the post-pandemic years, the Q2 2025 data shows the sector is also cooling. As noted in our Q2 2025 GTA Industrial Market Report (available in our previous articles):
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Vacancy has climbed to 4.3%, up from just 0.8% in 2021, and is projected to rise further
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Availability has surged to 58M sq. ft. (6.3%), more than triple its 2021 level
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Leasing volumes are slowing, with most activity now centered around renewals rather than new deals
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Sublet space has risen to nearly 12%, as companies shed surplus space, creating downward rent pressure
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Rents have flattened, averaging $19.40 per sq. ft., with annual growth turning negative (−0.3%)
This marks a shift from resilience to softness. Tenants are gaining negotiating leverage, landlords are facing pressure to offer incentives, and overall rent growth is expected to remain subdued through 2026.
Regional Context: Where the Strain Is Strongest
The map shows how unemployment pressures vary by province. Ontario’s rate edged slightly lower (7.7%), but Quebec (6.0%) and Alberta (8.4%) both posted increases, while Newfoundland and Labrador remains highest at 10.7%.
For real estate markets, this means:
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Office absorption will likely be slowest in provinces with rising unemployment.
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Industrial activity, while softening, will remain more resilient in Ontario and B.C. given their strong trade and logistics infrastructure.
GTA Market Outlook
In our Q2 2025 GTA Office Market Report, we noted Toronto’s office vacancy stood at 11.3%. With job weakness spreading, vacancy is expected to trend higher into late 2025, particularly in downtown Class A and aging suburban properties.
Meanwhile, as detailed in our Q2 2025 GTA Industrial Market Report, industrial vacancy is also on the rise, with availability climbing and rents flattening. The GTA still benefits from strong logistics fundamentals, but the influx of new supply and slower occupier demand mean landlords will need to stay competitive.
What This Means for Landlords and Tenants
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Office landlords: Prepare for slower lease-up times and downward rent pressure. Incentives and flexible terms will be key.
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Office tenants: This is a chance to secure higher-quality space at more favorable terms.
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Industrial landlords: Rising vacancy and availability demand more proactive leasing strategies.
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Industrial tenants: Market conditions provide leverage for negotiation, especially with sublease space adding competitive options.
Looking Ahead
A resolution to the trade dispute remains critical — not just for manufacturers and exporters but for the overall commercial real estate market. For now, both office and industrial sectors are showing signs of weakness, albeit to varying degrees.
At Freeway Real Estates Inc., we help clients navigate these shifts, leveraging market intelligence and real-time data to make strategic decisions in a changing environment.
