Canada's industrial real estate markets are progressing at markedly different speeds across the nation, with certain regions experiencing more severe effects from ongoing trade disruptions while others demonstrate notable resilience. This divergence is highlighted in Royal LePage's comprehensive 2026 Commercial Real Estate Report, which reveals a complex landscape shaped by regional dynamics and economic pressures.
Regional Disparities in Market Performance
Year-end data from Royal LePage indicates that conditions eased across several major markets throughout 2025, while other areas—particularly Calgary—continued to record rising rental rates despite experiencing higher vacancy levels. This pattern points to a widening divergence not only by geographic region but also by asset type, creating a fragmented national picture.
Greater Toronto Area Experiences Softening
In the Greater Toronto Area, industrial asking rents declined by 4.9 percent in 2025, settling at $21.88 per square foot. Concurrently, vacancy rates increased to 3.4 percent from 2.9 percent the previous year. Downtown Toronto witnessed an even more pronounced year-over-year vacancy increase, rising to 2.1 percent, signaling a retreat from the exceptionally tight market conditions that characterized the pandemic period.
Calgary Defies National Trends
Calgary's industrial market followed a distinctly different trajectory. "We're still seeing vacancy in the three to four percent range, which represents a very tight market," explained Maxine Morrison, an industrial real estate executive with Royal LePage in Calgary. She noted that as new industrial space becomes available, modest increases in availability haven't alleviated rental pressure because demand remains robust.
Rising construction costs have reinforced this dynamic. "Tariffs are increasing construction expenses, particularly since commercial construction relies heavily on steel," Morrison emphasized, adding that elevated building costs have translated into higher operating expenses and rental rates without significantly dampening leasing activity.
Evolving Demand Patterns
Calgary's industrial demand has diversified beyond traditional warehouse and energy-sector applications. Logistics operations, data centers, and hybrid industrial-retail formats are increasingly absorbing available space. Morrison further observed that non-traditional users—including recreational operators such as indoor volleyball and pickleball facilities—have occupied industrial spaces that might otherwise have remained vacant.
Market Recovery and Structural Factors
Data from the Greater Toronto Area industrial market suggest the regional divergence reflects timing and structural differences rather than a uniform downturn, according to analysis from Colliers. Gord Cook, vice-chairman at Colliers, explained that higher interest rates softened industrial demand during 2023 and 2024, while tariff uncertainty delayed a recovery that began emerging late last year.
"We were quite optimistic entering 2025, but the tariff narrative significantly cooled the market and postponed the recovery we started witnessing in late 2024," Cook stated. This pause eventually gave way to a rebound by year's end. "We observed strong net absorption in the fourth quarter of 2025, one of the most robust quarters we've seen in over three years," he added.
Long-Term Supply Challenges
Cook identified long-term supply as a critical issue, noting that rental rates necessary to justify new construction remain substantially above current market rents, keeping development activity subdued through 2026 and 2027. Early indicators of tightening are already appearing in less visible metrics. "We're seeing incentives contract in core markets," Cook noted, referring to reduced free rent periods and tenant inducements that typically precede firmer pricing.
Office Market Parallels
Office leasing activity has continued, though demand has been driven primarily by tenant relocation rather than expansion, keeping overall space requirements constrained. "Employers are placing greater emphasis on how space is utilized rather than the quantity of space they occupy," said Matt Jacques, interim general manager of Royal LePage Commercial.
The Canadian industrial real estate landscape reveals a nation moving at multiple speeds, with trade disruptions, construction costs, and evolving demand patterns creating distinct regional narratives that will likely continue shaping market dynamics in the coming years.
