In early January, the Ford government’s return-to-office (RTO) mandate took effect, ordering 60,000 public servants back to the office. The move culminates more than a year of RTO mandates from big names in tech and finance, reaching a fever pitch in late 2025, and has put a significant amount of pressure on Toronto’s office market.
The trend is reversing years of near-stagnant activity in the downtown commercial real estate scene, which took a big hit from COVID-era work-from-home policies. And it comes as companies are advocating for increased productivity and workplace camaraderie, alongside needing to justify massive investments in costly office spaces.
But the road back to the office hasn’t been seamless. After shedding space during the pandemic, workers at some of the Big Five Banks complained about lack of desks and office space upon returning for four-day in-office weeks in the latter half of 2025. More recently, Premier Ford has acknowledged delays in providing adequate office space for public servants, calling the roadblock “a little bump.”
Adam Best, Vice President and Sales Representative at Colliers, explains the shortage is due to compression from both ends.
“Demands have increased significantly, and we have no substantial new developments planned that could deliver in the next four years,” he says. At the same time, businesses have grown while also cutting down on office space during the remote-work years.
Demand to trickle into B- and C-class
Much of the increased demand from RTO has been concentrated in trophy and upgraded A-class office spaces, says Best. These are newer offices that are rich in amenities and well-located, particularly in the financial core and within close proximity to Union Station. But the desirability and scarcity of these trophy office spaces has created a bifurcated market. As of the last quarter, the vacancy rate for these spaces was just 3%, while older and less desirable B- and C-class offices sat around 25%, according to CBRE.
Heading into 2026, this compression should eventually spill over into less desirable asset classes in Toronto, predicts Avison Young’s 2026 Outlook. On the ground, Best says he’s already seeing market activity trickling down into B- and even C-classes as well.
Rents on the increase
With trophy assets remaining limited, many tenants will struggle to expand or relocate, forecasts AV’s Outlook, incentivizing landlords to “capitalize on strong demand.”
“Some landlords are already increasing their asking rents, quarterly, if not monthly, which was the way things were back in 2019,” says Best. “We're also starting to see competing offers on space, and some of the some larger tenants are [...] securing rental rates before they continue to spike, almost like locking in your mortgage.”
According to Colliers’ Toronto Office Market Report Q4 2025, trophy rents have already increased by 21% since 2020, and are projected to rise another 20% by 2030.
New office spaces on the horizon?
With rents expected to rise alongside demand in 2026, there’s also cautious chatter about the possibility for new office developments. “There’s rumours of a building at Bay and Queen that might be looked at for redevelopment, plus another in the south core” says Best. “And the big one that everyone's monitoring is Oxford Development’s 30 Bay St (The Hub). That's the most likely next one to kick off.”
If it does break ground, The Hub would be the first office development to kick off since before the pandemic, highlighting just how deeply the market was impacted by remote work.
In the meantime, landlords of A- and B-class buildings have been attracting activity by upgrading their office spaces, adding new amenities and better technology to be competitive with higher asset classes.
How retail benefits
Beyond the office segment, retail also stands to greatly benefit from the return of in-person work, says AV’s Outlook. “As more workers return to offices in-person, restaurants, shops and service providers in the urban core will experience higher demand, creating a more dynamic environment for occupiers and investors alike,” reads the report.
Best says he’s seen the impacts of RTO on retailers first hand. “Just go to the PATH on a weekday. [...] Now you're waiting in line at a food spot for 30 minutes to an hour, in some cases,” he says. “The number of new, notable restaurants that have opened up in the past year in the financial core alone is pretty staggering. To me, that's a strong indicator of everyone's bullishness on the office market recovery.”
