MORE PURPOSE BUILT RENTALS??
GLOBE AND MAIL - John Lorinc (edited)
If the renderings bear out, the most distinctive feature of an elegant 18-storey building slated for 450 Dufferin St. in Toronto, just north of Queen Street West, will be its very ordinariness. The project, which is expected to break ground in late 2025, has no fussy angular planes or sculptural balconies. It’s a bit squat. And, in contrast to the dozens of very tall glass-clad point towers that now dot the downtown, the exterior façade will be masonry with so-called punch-windows – sort of like the ones in the apartment where your grandparents lived.
It’s not the only such project in the works, says architect Brian Melcher, a principal at Superkül, which is designing 450 Dufferin for Hullmark. “We’re seeing a shift toward simpler, more constructible, better cost-effective design. That project is a good example of where we’re seeing the market kind of pivoting to,” Mr. Melcher says.
Hullmark executive vice-president Noah Rechtsman points out that 450 Dufferin will be the company’s third purpose-built residential tower – the second, now under construction, is a 17-storey building at King Street West and Sudbury Street.
"The ongoing evolution from a condo-dominated development sector to one that produces purpose-built rental turns on the behaviour and expectations of real estate investors."
Institutional and private investors have traditionally sought to add rental properties, with their very stable revenue streams, to their portfolios. And market conditions seem to be providing more investment opportunities. Mr. Rechtsman, like a growing number of others developers, knows that sluggish condo pre-sales have made it exceedingly difficult for builders to launch condo projects at the moment, despite falling interest rates.
Much larger developers agree: “I think you’ll see fewer condo projects that are launched, especially over the next 12 or 24 months,” Rael Diamond, president and CEO of Choice Properties, said prior to an Urban Land Institute gathering last month. “But there are lots of groups, not only Choice but others, who are well capitalized, who are trying to make purpose built rental work. Lots of developers we speak to are very focused right now on, ‘How do we make purpose built rental work’ because they are pivoting away from condos.”
In fact, Choice, whose largest shareholder is the Weston family, is grappling with that very pivot on one of its signature ventures – the long-delayed redevelopment of a Loblaw’s site at Dundas and Bloor streets. At a public consultation last fall, Choice officials revealed that the massive project – several towers and mid-rises with about 2,000 units, arrayed around a park – will be predominantly rental. “They’ve been pretty transparent that they have shifted to being mostly rental,” says architect Brian Hagood, who represents the Herman, Ritchie, Golden and Silver Community Association, a small cluster of homes just south of the site. “I think it’s over 90 per cent.”
Condo builders don’t need much of their own equity to get a project started and can recoup their upfront investment, plus profit, within a decade. Most obtain critical construction loans when they’ve presold about 65 to 75 per cent of the units and can then pay them back as soon as the project is completed.
Firms building purpose-built rental, on the other hand, need a lot more equity to secure project financing because they don’t have access to all the preconstruction capital pledged by those who buy units up front. Rather, they’ll be paying down those mortgages for decades.
Rentals, consequently, attract investors with longer time horizons and lower return expectations due to the well-recognized steadiness of the income generated by rental properties. Traditionally, the market was dominated by institutions, real estate investment trusts and high-net worth families or individuals whose companies have owned and operated apartments for generations.
Renewed investor interest in rental started in the mid-2010s, and focused mainly on luxury projects. The volume of rental deals backed by Canada Mortgage and Housing Corporation has increased sharply since the mid-2010s, partly due to programs geared at spurring rental projects. For example, CMHC’s apartment construction loan program, initiated in 2017 with a $55-billion cap over 15 years, has lent almost $22-billion to date. About 39,000 units are complete or under construction.
Some of the newer players in the rental segment bring their own expectations to these financing deals. Jonathan Diamond, principal at Well Grounded Real Estate, which is developing a low-carbon rental project in Scarborough, has been talking to investors about his firm’s next venture. “We have a very specific mandate of what we want to accomplish in the city,” he says. “So the question is, what groups are most aligned with that vision, and who will also give us the flexibility to carry out that vision? We want the capital, but we don’t want to be micromanaged.”
APARTMENT RENTS MOVING UP
COSTAR Garry Marr
Apartment rents climbed across the country for the first time in six months, but they still remain lower than they were a year ago as the market works to rebound.
The average asking rent for all residential properties in Canada increased 1.5% in March from a month earlier to $2,119, according to a report produced by Rentals.ca and market data firm Urbanation. This marked the first monthly increase since September, according to the firms. Even with the monthly gain, average rents were down 2.8% from a year ago last month. For the sixth straight month, there was a year-over-year drop in apartment rents in the country, the report said.
However, Canada's battle with the United States over tariffs is expected to affect apartment rents, the report said. "Rents are likely to continue facing downward pressure in the near term due to the expected negative economic impact and job losses caused by the trade conflict with the U.S.," Hildebrand said.
The latest numbers come as Calgary-based Boardwalk Real Estate Investment Trust, a company with a portfolio of more than 34,000 suites, said its average rental rate increased to $1,539 per month in February. That compares with $1,404 a year earlier.
The Rentals.ca and Urbanation report noted that since the onset of the pandemic in March 2020, average asking rents in Canada have climbed 17.8%.
Purpose-built apartments have been the big winner. Those properties typically are owned by a single landlord as opposed to condominium towers, where ownership includes several investors. Monthly rents at purpose-built multifamily properties are up 35%, to $2,086, since the start of the pandemic, according to the report.
Condo investors have seen their rental rates flat over the same five-year span, rising 0.6% to $2,232 after a 3.8% annual decline in March.
2025 HOUSING MARKET PROJECTIONS
Remi
Predicting Canada’s economic future remains challenging due to ongoing tariff disputes, reduced immigration targets, and changes in federal leadership, all of which contribute to housing market uncertainty. According to the Canada Mortgage and Housing Corporation’s (CMHC) latest Housing Market Outlook, these factors will inevitably influence rental housing demand. CMHC forecasts that in 2025, rent growth across most Canadian markets will slow as vacancy rates increase, ultimately leading to gradual improvements in rental affordability.
As per the report, “We expect lower immigration and an increase in first-time homebuyers to continue to reduce rental demand throughout 2025 – 2027. Supply will continue to expand as new rental units are completed, leading to higher vacancies and slower rent increases.”
Since 2024, apartment starts in Canada have reached record levels, driven by government initiatives, a rapidly growing renter population, and strong rent growth during the planning phase. While CMHC projects this momentum to persist through 2025 and 2026, fueled by numerous upcoming multi-residential projects, analysts warn that construction activity will likely ease by 2027 as the current pipeline of purpose-built rental projects comes to a close.
In Ontario, primary market rent growth slowed in 2024 after two years of acceleration, owing to increased vacancy rates. CMHC expects more of the same in 2025 due to increased multi-unit housing starts and the planned reduction in the non-permanent resident population, resulting in fewer international students. The purpose-built rental apartment vacancy rate in Toronto is expected to rise due to higher levels of condominium and purpose-built rental completions, along with weaker demand and a higher unemployment rate. Following record-low rental turnover in 2024, some GTA renters will likely transition to homeownership, further increasing vacancy rates in Canada’s largest city. CMHC says it expects below-average rent growth for two-bedroom rentals in 2025 and 2026, allowing incomes to catch up and more renters to enter the market by 2027.
CMHC expects housing starts across Canada to slow down over the forecast period, primarily due to fewer condominium apartments being built in the coming months and years. With low investor interest and more young families looking for family-friendly homes, developers will find it harder to sell enough units to fund new projects. The increase in unsold units will likely reduce new project launches, leading to a decline in new condominium apartment construction.
That said, regional activity will vary according to the province. In Ontario, pre-construction condominium apartments, often bought by investors, will see lower demand due to weaker resale and rental markets, leading to new construction slowing down promptly as of 2025. In B.C., fewer investors and stronger resale markets will lessen this slowdown, while the impacts will be minimal in Alberta where more buyers are actual residents as opposed to investors.
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