Multifamily Q4 Market Update

Canada's multifamily rental market is experiencing a significant transition as economic pressures and policy changes reshape demand dynamics. While the sector maintains moderate rent growth and solid fundamentals, several quarters of deceleration signal a market adjustment after years of exceptional performance.

Economic Headwinds

The Canadian economy faces substantial challenges stemming from U.S. tariffs imposed on its largest trading partner. Goods outside the U.S.-Mexico-Canada trade agreement face a 35% tariff rate, with steel and aluminum exports subject to rates up to 50%. The effective tariff rate stands at 12%, according to Moody's Analytics. In response, the Bank of Canada has reduced its benchmark interest rate to 2.25% to stimulate consumer activity.

Economic growth remains challenged. After shrinking at an annualized 1.6% rate in the second quarter, largely due to a 7.5% drop in exports caused by tariffs, the economy managed only 0.2% growth in July. The consensus forecast projects roughly 1.0% GDP growth for the year, though analysts remain divided on whether goods and services sectors will rebound. The employment market has weakened considerably. Through September, the economy created only about 8,000 jobs per month, far below the long-term average of 18,000. The economy shed over 100,000 jobs in July and August combined, though a strong September showing of 60,400 new jobs provided some hope. Manufacturing and warehousing sectors, directly exposed to tariffs, have suffered the hardest hits. The unemployment rate climbed 40 basis points year-over-year to 7.1% in September, with expectations leaning toward further increases.

Population Growth Slowdown

Population growth has decelerated dramatically, increasing by only 47,000 (0.1%) during Q2 2025, one of the the slowest second-quarter growth rates since 1946. The number of non-permanent residents dropped by nearly 60,000 in the quarter, declining to 7.3% of the population after peaking at 7.6% in fall 2024. This immigration slowdown directly impacts rental demand and has contributed to market loosening.

Rent Growth Decelerates

After several years of above-trend increases, rent growth continues its sustained deceleration. The national average in-place rent increased just $14 in Q3 2025 to $1,734, with annual growth dropping 90 basis points from the previous quarter to 3.9%. This marks the sixth consecutive quarter of decelerating rent growth. Halifax led the nation with 5.9% year-over-year in-place rent growth, benefiting from its emerging technology market. CBRE recently ranked Halifax as the No. 2 emerging tech market in North America, citing 6,500 new tech jobs from startups like Volta and COVE, plus graduates from institutions like Dalhousie University. Edmonton (4.9%), Saskatoon (4.7%), and Montreal (4.6%) also posted strong gains, while Calgary (1.1%), Kitchener-Cambridge-Waterloo (3.1%), and Toronto (3.2%) showed the weakest performance.

New Lease Market Softens

The lease-over-lease rent metric, measuring new leases on vacant units—reveals deeper market softening. These rates, unaffected by rent control, dropped to 2.4% in Q3 2025, down 40 basis points from the previous quarter and significantly below the 9.1% recorded in Q3 2024. Halifax (4.9%), Ottawa-Gatineau and London (both 4.3%), and Montreal (2.9%) led new lease growth, while Calgary posted negative growth at -3.0%. Renewal lease rates, more stable due to rent control in many provinces, fell 40 basis points to 3.0% nationally. Notably, Calgary's renewal leases turned negative (-2.2%) year-over-year, reflecting greater supply increases and slowing in-migration.

Vacancy Rates Rise

The national vacancy rate continued climbing to 4.3% in Q3 2025, up 20 basis points from the previous quarter and 110 basis points year-over-year. Calgary maintains the highest rate at 5.8%, though it fell 90 basis points from the previous quarter. Winnipeg (2.4%) and Halifax (2.8%) have the lowest vacancy rates. Toronto's bachelor unit vacancy rate reached 8.9% in Q3. Montreal experienced the largest quarterly increase, rising 100 basis points to 5.6%. The city added 3.3% to its purpose-built rental stock in 2024 and another 2,136 units in Q1 2025, according to CMHC. Despite increased supply, Montreal's in-place rents still grew 4.6% year-over-year.

Increased Turnover

Annual turnover reached 25.0% in Q3 2025, up 220 basis points from the previous year and the highest level in three years. Turnover increased quarter-over-quarter in every market except Calgary, reflecting loosening conditions from reduced immigration and weaker employment. Vancouver saw turnover jump 5.2 percentage points year-over-year, while Kitchener-Cambridge-Waterloo increased 4.3 percentage points and Toronto rose 3.6 percentage points. The average tenant length of stay was 36 months nationally, up from 34 months a year ago. Tenants stay longest in Toronto (47 months), Hamilton (41), and Halifax (40), and shortest in Calgary and Saskatoon (26 months each).

Housing Supply Challenges

Canada's for-sale housing market remains weak, with home sales well below long-term averages. Condominium sales in high-cost markets like Toronto and Vancouver have slumped, with unsold units entering the rental market and competing with traditional multifamily properties. In August, Toronto condo sales were down 42% year-over-year and 90% below the 10-year average. Despite legislative efforts to increase housing supply, CMHC forecasts that purpose-built rental starts will drop in 2025 relative to 2023 in Vancouver, Toronto, and Ottawa, though increases are expected in Calgary, Edmonton, and Montreal. The Canadian multifamily market faces an uncertain period as it balances slowing demand, increasing supply in select markets, and broader economic challenges while maintaining relatively healthy fundamentals overall.