Multifamily

The multifamily sector faces heightened near-term uncertainty from revised demand outlooks and challenges in the high-end portion of the market. Long term growth fundamentals, however, remain solid.

Trends to Watch

1. While immigration curbs may lower aggregate demand for rental housing, vacancy rates among the most accessible segments of the market are expected to remain healthy.
2. The rent growth outlook for the multifamily sector faces greater uncertainty in 2025, especially for the wave of newly completed units with higher rents.
3. Developers are likely to temporarily pause new construction starts while waiting for the market to adjust to the new demand outlook and work through recent new supply.

Demand for the most accessible segments of the rental market expected to remain healthy

While the recent immigration curbs and potentially slight population declines over 2025 and 2026 may lower aggregate rental housing demand, Canada still faces a housing affordability issue and pent-up demand. Despite interest rate cuts and a cooler housing market, housing affordability has remained elevated where the gap between homeownership costs and household income levels are still wide apart. Renting continues to be the more affordable housing option for many Canadians. Coupled with the rapid population growth from the last two years, there is still a substantial amount of pent-up demand for rental housing that will need to be fulfilled.

However, the recent caps to Canada’s immigration policies may provide some limited relief to the generally tight rental market conditions. The reductions to temporary residents specifically targeted international students and temporary foreign workers, both demographics which predominately would have been renters. If these announced plans are fully realized, the potential vacancies from temporary resident renters leaving would open up options for other households to take advantage and relocate into more affordable housing.  Overall in 2025, only a minimal impact is expected to vacancy rates for the most in-demand rental units such as those with rent controls or more affordable rental rates. Some short term volatility is possible during this transition period, and the impacts may not be uniform across Canada, but long term fundamentals will continue to support low vacancy rates in this segment of the rental market.

The greatest potential for vacancy rate expansion in 2025 will be among the influx of newly built units with rents at the higher end of the range. These newer units have required higher rents as a result of the escalation seen in construction costs in recent years. However, the higher rents are also becoming increasingly mismatched with household income capabilities. With still more new supply expected to deliver over the near term, vacancy rates in this segment of the multifamily rental market are likely to rise further in 2025.

The rent growth outlook is flat to inflationary, except for high-end recent completions

Multifamily rent growth in 2024 bifurcated and moderated significantly off of the record increases recorded in the two years prior. Newer units, in particular, had seen market rents driven up by high construction costs, but the surge of completions in 2024 pushed up vacancy rates in this segment and rents had started to fall in the major metropolitan areas. These rent decreases were most apparent in cities with large condominium markets, such as Vancouver and Toronto, that also saw an influx of new supply in 2024. Meanwhile, for the rest of the multifamily rental market, rents had largely held flat or recorded modest increases amid sustained demand for the more affordable housing units.

For 2025, the outlook for multifamily rent growth is more uncertain but the market will face increased downside pressure amid more new supply and weaker population growth forecasts. Rents for newly built units are at the biggest risk for decreases given higher vacancy rates and still more units expected to deliver over the short term. This segment of the market will likely have to recalibrate pricing in order to fill in vacancy. But for the rest of the market, with generally more affordable price points, rent growth is expected to be flat or inflationary in 2025. For metropolitan areas seeing strong levels of in-migration, such as in the Prairie Region, rent growth is expected to remain solid and supported by growing demand.

The net result in 2025 is likely for overall market rents to hold steady or potentially see modest declines. However, when viewed over the longer term, average market rents will remain above levels from three years ago and reflective of strong long term growth fundamentals.

Construction activity likely to temporarily pause as market recalibrates

With population growth potentially heading for modest decreases over the next two years, this has placed more headwinds on multifamily construction activity that has already been slowing in some major metropolitan areas. Concerns about potentially lower aggregate demand from the new immigration curbs is likely to hold back developers from new construction starts, at least until there is more certainty for the future growth outlook. At the same time, construction costs are still elevated, albeit slightly off of their peak levels, and continue to make some development projects difficult to rationalize financially. In cities like Vancouver and Toronto with large condominium markets, the situation is further exacerbated by the recent influx of new supply, a steep slowdown in sales activity and a growing number of projects falling into receivership.

This combination of market pressures and negative sentiment will likely cause developers to pause new construction over in the short term in 2025 as the market adjusts to the revised demand outlook. Over the longer term, this will mean less new supply in a few years’ time that might reignite supply issues just as population growth resumes again.