Dream Office Real Estate Investment Trst (TSE:D.UN) executives pointed to improving office market conditions in Canada—particularly downtown Toronto—during the REIT’s fourth-quarter 2025 earnings call on Friday, outlining stronger leasing momentum, an outlook for rising occupancy in 2026, and a financial forecast that reflects both operating improvement and the impact of asset sales and redevelopment activity.
Management highlights a shift in leasing conditions
Chair and CEO Michael Cooper said the last two quarters provided clearer evidence that office market dynamics have improved, describing what he characterized as a “waterfall” effect as top-tier buildings fill and demand filters down to other high-quality assets. Cooper cited recent examples of large leases being pursued more urgently, along with a report that CIBC SQUARE is now fully leased.
Leasing results and occupancy trends
Senior Vice President of Portfolio Management Derrick Lau said national office vacancy decreased 40 basis points to 18% in Q4 2025, led by Toronto, which recorded 1 million square feet of positive absorption and a 120-basis-point decline in vacancy to 15.9%. Lau added that sublease availability has fallen back to 2017 levels, which management attributed to return-to-office mandates and a slowdown in corporate space optimization.
For Dream Office, management said 2025 was its strongest leasing year since before the pandemic. The REIT completed about 830,000 square feet of leasing in 2025, with roughly 85% in Toronto. Lau reported downtown Toronto committed occupancy ended 2025 at 87.4%, while in-place occupancy was 79.4%, with most of the gap expected to commence in 2026.
Director of Asset Management Kingsley Fforis provided additional detail, saying the REIT executed 140 transactions nationally in 2025, including 115 deals in Toronto totaling 700,000 square feet (390,000 square feet of new leases and 310,000 square feet of renewals). He said Toronto deal economics were consistent with internal budgets, with a weighted average net effective rent (NER) of about CAD 20 per square foot, and noted NERs improved as the year progressed. According to Fforis, NERs rose more than 10% year-over-year, increasing from about CAD 22 in the second half of 2024 to CAD 25 in the second half of 2025.
Fforis also said new lease terms were longer than typical underwriting assumptions, with a weighted average lease term of nine years for new deals in 2025 compared with a standard assumption of five years, lowering annualized leasing costs.
Key projects and leasing priorities
Management discussed several asset-specific updates:
- 67 Richmond redevelopment (Toronto): Lau said the redevelopment was completed and the REIT secured a 32,000 square foot lease for the remaining vacancy. Base rents start at CAD 35 per square foot and rise to nearly CAD 48 over a 10-year term, with staged economic commencement beginning in June 2026 and continuing in December.
- 606 4th Street (Calgary conversion): The office-to-residential conversion is progressing with timelines and costs “in line with expectation,” with first occupancy targeted for Q3 2027.
- 74 Victoria (Toronto): Fforis said this asset represents a disproportionate share of vacancy after a partial government vacate in 2024 reduced occupancy from 100% to about 45%. Since then, the REIT has leased 50,000 square feet, with about 100,000 square feet remaining. Management said recent renovations to model suite floors have increased leasing traction, and the REIT hosted a broker event attended by more than 70 brokers.
Fforis emphasized the REIT’s model suite program as a driver of leasing velocity. He said Dream Office has delivered 120,000 square feet of model suites and leased 110,000 square feet—about 90%—typically within six months of delivery. He added that an additional 30,000 square feet of model suites are expected in Q2 2026, with about 40% already pre-leased. When asked about costs, management said full model suites generally cost about CAD 100 to CAD 120 per square foot, with some suites delivered in the CAD 80 to CAD 90 range including furniture.
2026 guidance, balance sheet updates, and valuation commentary
CFO Jay reported diluted funds from operations (FFO) of CAD 0.56 in Q4 2025 and full-year 2025 FFO per unit of CAD 2.46, slightly above the REIT’s prior guidance range of CAD 2.40 to CAD 2.45. Same-property NOI growth for 2025 was 0.5%, which was at the low end of management’s guidance of flat to low single-digit growth.
On the balance sheet, Jay said the REIT addressed CAD 741 million of 2025 debt maturities—about 60% of total debt—and extended its CAD 375 million revolving credit facility to September 2028. For 2026, he said Dream Office has already addressed CAD 140 million of CAD 166 million of maturing mortgages and described refinancing risk as minimal.
Liquidity (cash and undrawn revolving credit) increased to CAD 97.6 million at year-end from CAD 69.3 million in Q3. Jay also noted the REIT sold its remaining U.S. office building near Kansas City for about CAD 9.6 million after the sole tenant vacated in November 2025. He said the sale eliminated potential holding losses of about CAD 1.5 million per year for an empty building but will reduce 2026 NOI by about CAD 4.5 million.
The REIT’s year-end net asset value (NAV) per unit was CAD 49.92, using a weighted average cap rate of 6.3% for the income portfolio. Jay said NAV declined CAD 1.75 (3.4%) quarter-over-quarter due to a 15-basis-point increase in appraisal cap rates, resulting in a CAD 41 million fair value decrease. He added the REIT did not capitalize maintenance capital to reflect a more conservative view of values. Dream Office externally appraised CAD 344 million (17%) of the portfolio in Q4, bringing total 2025 appraisals to 31% of the portfolio.
For 2026, management guided to FFO per unit of CAD 2.25 to CAD 2.30, which Jay said represents a decline of about 7.5% year over year at the midpoint. He attributed the decline to several items, including reduced income from sold assets (notably the Kansas City building), the expected reduction in income at 606 4th Street in Calgary as tenants are moved out for construction, and the absence of items recognized in 2025 such as partial carry income and other one-time income categories.
On operations, Lau said the REIT is targeting year-end 2026 committed occupancy in downtown Toronto of 88% to 89% and in-place occupancy of 82% to 85%. He also guided to downtown Toronto comparative NOI growth of 2% to 5% in 2026 and total portfolio comparative NOI growth of about 1% to 3%. Fforis added that in-place occupancy in Toronto could dip in Q1 2026 due to early-year expiries not renewed, before recovering into the low 80% range by the end of Q2 and trending higher through the year.
Leverage metrics included net total debt to net total assets of 54.2% and net total debt to trailing 12-month EBITDA of 11.6x, which Jay said is higher than desired longer term. Management reiterated a goal of reaching 90% occupancy and in-place occupancy across downtown Toronto in two years, which it estimated could drive CAD 15 million to CAD 20 million of incremental NOI and bring downtown Toronto comparative NOI to CAD 95 million to CAD 100 million, including 67 Richmond.
Cooper also commented on improving transaction activity for office properties, saying recent trades increasingly reflect investors buying office buildings for office returns rather than user-driven purchases. He said the assumptions behind some transactions appear to include 95% occupancy and leasing costs between 2019 levels and current costs, which he called encouraging for market clarity, though he said Dream Office is not currently motivated to sell core downtown assets.
About Dream Office Real Estate Investment Trst (TSE:D.UN)
Dream Office Real Estate Investment Trust is a real estate investment trust that acquires, manages, and leases primarily central business district and suburban office properties in urban areas throughout Canada. The majority of the company’s real estate portfolio, in terms of revenue generation, is located in the Canadian province of Ontario. The province of Alberta also brings in a sizable percentage of revenue. The company generates nearly all of its revenue in the form of rental income from mid- to long-term lease agreements with tenants.
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