Monday Market Minute | Aug 7, 2023

Canada's rental market reaches crisis levels as vacancy hits historic lows

What Moved

CMHC's mid-year rental market assessment painted a stark picture: national purpose-built rental vacancy sat below 2%, with Toronto at 1.1%, Vancouver at 0.9%, and several secondary markets effectively at zero. Average rents had increased 8–12% year-over-year in most major centres, with some markets posting 15%+ growth. The drivers were clear — record immigration, elevated mortgage rates pricing out would-be buyers, and a chronic underinvestment in rental construction over the past decade.

Why It Matters

The rental crisis was the strongest structural tailwind in Canadian private real estate. Purpose-built rental funds experienced near-zero vacancy, robust rent growth, and improving NOI margins simultaneously. For investors in private REIT structures focused on residential rental, the operating fundamentals had never been better. The challenge was on the supply side — new rental construction remained hampered by the same cost and financing pressures affecting the broader development market, meaning the scarcity premium was unlikely to ease anytime soon.

Signal to Watch

Whether federal or provincial governments would introduce new incentive programs — such as GST exemptions on rental construction or accelerated permitting — that could unlock supply and shift the long-term outlook for rental-focused strategies.

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