When Flat Rents Become the Base Case

Underwriting Canadian Multifamily in 2026

The Assumptions That Quietly Break Deals

For much of the past cycle, multifamily underwriting in Canada benefited from an unusually forgiving environment. Rent growth masked operational inefficiencies, narrowed the gap between optimistic assumptions and reality, and allowed deals to stabilize faster than expected. That environment has changed. As we move into 2026, flat rents are no longer a stress scenario in many markets, they are the base case. When rents stop doing the work, the assumptions embedded in underwriting become far more visible, and in some cases, far more fragile. The most vulnerable models are not necessarily the most levered or the most aggressive on pricing. They are the ones that still rely on turnover premiums, rapid rent resets, and uninterrupted tenant mobility. In a flat-rent environment, turnover slows and the upside from each unit that does turn compresses. That combination undermines revenue growth far more quickly than most proformas anticipate. Assets positioned in the upper end of their submarket rent bands feel this pressure first, while buildings offering rents closer to median levels continue to see stronger retention and steadier cash flow. This divergence matters, and it deserves to be modeled specifically rather than smoothed out through blended growth assumptions.

What Flat Rents Reveal About Revenue and Risk

One of the clearest signals emerging from recent data is the widening gap between in-place rents and turnover rents. In several markets, that gap has grown large enough to discourage tenant movement altogether. From an underwriting perspective, this creates stability in the short term but caps upside unless vacancy risk is intentionally accepted. Deals that assume both high turnover and meaningful rent step-ups are effectively betting on a market condition that no longer exists. Concessions reinforce this point. Incentives such as free rent and leasing bonuses have reappeared in select segments, particularly among newer assets competing for tenants. These are not marginal factors. They reduce effective rents, extend lease-up periods, and delay cash flow. When concessions are excluded from underwriting, the model overstates both income and resilience. Flat rents also increase the sensitivity of deals to expense growth. Property taxes, insurance, utilities, and payroll continue to rise regardless of revenue momentum, and when rent growth stalls, cost discipline becomes the primary driver of performance rather than a secondary consideration.

Underwriting for Durability, Not Momentum

In this environment, stress-testing is no longer a conservative exercise—it is a requirement. Flat rents for multiple years, slower lease-up, modest cap rate expansion, and normalized expense growth should be viewed as realistic assumptions rather than downside scenarios. Deals that survive those conditions are not merely defensive; they are positioned to perform when growth returns. Canada’s long-term rental fundamentals remain intact, but the timing and distribution of that growth are far less predictable than they were even a year ago.

The opportunity today lies in underwriting that does not depend on momentum to succeed. Conservative leverage, realistic rent assumptions, and patience in execution matter more than narrative-driven upside. Flat rents do not break strong multifamily deals. They expose weak ones. The investors who acknowledge that distinction, and price it correctly, will define the strongest Canadian multifamily vintages coming out of this cycle.