Underwriting Multifamily in a New Dynamic

Over the past year, the most important change in Canada’s multifamily market hasn’t been construction volume or headline vacancy rates. It’s been pricing behaviour. Asking rents have softened across most major markets, and that shift matters far more for underwriting than it does for media narratives. By the end of 2025, average asking rents were declining year over year in most large Canadian cities. This wasn’t a one-month anomaly or a seasonal dip, it was a sustained trend that ran through much of the year. For the first time since the post-pandemic surge, rent growth stopped doing the work for owners. From an underwriting perspective, it requires a renewed discipline.

For several years, underwriting assumptions were forgiving. Modest rent growth, quick lease-up, and limited tenant choice meant that revenue risk sat comfortably in the background. That environment no longer exists. Today, the spread between in-place rents, turnover rents, and market asks has become one of the most important variables in a deal model.

What stands out to me is not that rents are falling in absolute terms, they remain historically high, but that momentum has shifted. That’s what underwriters have to price.

In markets like Toronto and Vancouver, asking rents eased even as average rents paid continued to rise, largely because lease renewals captured increases that new listings could not. This divergence matters. It tells me that underwriting based solely on market asking rents risks overstating near-term revenue if turnover assumptions are aggressive. At the same time, relying entirely on in-place rent growth ignores the increasing resistance tenants are showing when faced with large step-ups. The implication is clear: turnover assumptions deserve more scrutiny than they’ve received in recent years.

In December, much of the public conversation focused on tenants gaining leverage. I see the same data and draw a different conclusion. Leverage has become segmented. Newer, higher-priced units are competing harder, while older, well-located, lower-rent stock remains tight. That segmentation should show up explicitly in underwriting, not buried in a blended growth rate. When I look at deals today, I’m less interested in headline rent growth forecasts and more focused on three specific underwriting questions. First, how much of the building’s revenue growth depends on tenant turnover rather than organic increases? In markets where asking rents have softened, underwriting high turnover premiums introduces real downside risk. If those premiums don’t materialize, the pro forma unravels quickly. Second, where does the asset sit within the rent band of its submarket? Properties priced at or below market medians are still seeing strong retention and limited vacancy pressure. Assets that rely on pushing rents into the top quartile face a very different leasing environment than they did 18 months ago. Third, how sensitive is the deal to a flat rent scenario? In my view, any underwriting that requires sustained rent growth over the next 24 months deserves to be stress-tested aggressively. Flat rents are no longer a conservative assumption, they’re a realistic one.

Another theme that showed up repeatedly in December coverage was the growing gap between turnover rents and non-turnover rents. In several markets, that gap exceeded 25%. From an underwriting standpoint, this has two effects. It reduces tenant mobility, which stabilizes cash flow in the short term, but it also caps revenue upside unless the owner is willing to absorb vacancy risk. That trade-off needs to be explicit in the model. In a market where tenants are staying put, value creation comes less from rent acceleration and more from expense control, operational efficiency, and capital allocation discipline. I’m also paying closer attention to incentives. Free rent, moving allowances, and signing bonuses have reappeared in certain segments. These aren’t just leasing tactics, they’re underwriting inputs. Concessions reduce effective rents, extend payback periods, and can distort headline numbers if not treated properly in cash flow projections.

What I’m not doing is extrapolating short-term rent declines into long-term pessimism. Canada still faces a structural housing shortage, particularly for units affordable to middle-income households. But markets move in cycles, and underwriting needs to respect where we are in that cycle, not where we’ve been. The lesson from December isn’t that multifamily fundamentals have broken. It’s that the easy assumptions are gone. Deals now require sharper pencils and clearer thinking. Underwriting needs to reflect tenant behaviour, not just macro narratives. In this environment, the most resilient deals are the ones that work without heroics, moderate leverage, conservative rent assumptions, and realistic views on lease-up and turnover. That’s where I’m focusing my attention as the market recalibrates.

The opportunity hasn’t disappeared. It’s simply moved from growth to discipline