Canada's condo slowdown opens door for big developers to take over

  3/3/2025 |   SHARE
Posted in Real Estate Market by Vanguard Realty | Back to Main Blog Page

For years, Canada’s condo boom was driven by small-scale investors who purchased pre-construction units, betting on strong rental demand and rising property values. But that model is unravelling. Higher borrowing costs, stagnant rent growth, and falling resale prices have squeezed out many of these mom-and-pop buyers, leaving developers scrambling to adapt.

In their place, deep-pocketed institutional investors – pension funds, private equity firms, and large developers – are stepping in, betting that Canada’s housing shortage will make rental housing a safer, long-term investment.

At the peak of the housing boom, pre-sale condo buyers helped finance many of Canada’s largest residential projects, providing developers with the capital needed to break ground. But as interest rates surged in 2022, those investors started pulling back.

Rent growth failed to keep pace with rising mortgage costs, leaving many investors stuck with negative cash flow on their properties. At the same time, newly completed condos flooded the market, pushing resale values down. Even as borrowing costs eased in 2024, the pullback in investor demand has continued, making it harder for developers to secure financing.

“I don’t think the condo market is going to come back in the way it was,” said Mazyar Mortazavi, CEO of Toronto-based developer TAS. “Individual investors are no longer fuelling the condo market, hence there’s a market opportunity. That opportunity is going to be picked up by institutional capital.”

Big investors move in

With traditional condo buyers stepping aside, larger investors are reshaping the market, taking on entire rental projects rather than scattered condo units.

Blackstone Inc. became one of Canada’s largest apartment developers last year when it acquired Toronto-based Tricon Residential, a move that signalled a shift toward purpose-built rental housing.

Pension funds are also getting more involved. British Columbia’s public-sector pension fund is turning Toronto’s Cloverdale Mall into a mixed-use residential development, and smaller funds are financing rental buildings across the country.

For developers, the shift is already affecting project decisions. Carlo Timpano, president of Capital Developments, had initially planned a 50-story condo tower in Toronto but ultimately decided that rental housing was the safer bet.

“When you ran the math of holding a property for a recovery in the condo market versus building it as rental, the math simply looked better as rental,” Timpano told Bloomberg. “We’re speaking to new capital partners to see if there’s an interest in growing, not just one or two, but five or 10 buildings, on a go-forward basis.”

Supply gap creates opportunity

While the condo market works through a backlog of unsold units, some developers believe today’s construction slowdown could pay off down the line. With fewer new projects breaking ground now, rental buildings completed in the next five years may face less competition, making them more attractive to investors.

“There will be a dearth of supply in four to five years into which we’ll be delivering our product,” Timpano said.

Data from Urbanation shows that new condo completions in the Greater Toronto and Hamilton Area (GTHA) surged from 24,114 in 2022 to 29,800 in 2024, yet sales fell to just 4,590 units last year - the lowest level in nearly 30 years.

Meanwhile, developers that have pivoted to rental construction are helping maintain overall housing starts, which increased by 2% to more than 245,000 units in 2024, according to Canada Mortgage and Housing Corp. (CMHC).

Still, that’s far short of what’s needed to address Canada’s affordability crisis. CMHC predicts that total housing starts will drop in 2025, ranging from 226,600 to 243,000 units, a decline from 2024 levels

“We’re nowhere near what we need to be producing to make our way to an affordable market,” said Tania Bourassa-Ochoa, deputy chief economist at CMHC. “We should not only be maintaining the rental construction we’re seeing right now, but accelerating that.”

While large investors are stepping up to fill the condo market gap, rising construction costs are adding a new layer of uncertainty, and a potential trade war with the United States could make it worse.

Materials like steel beams, cement, and appliances are already becoming more expensive, and tariffs on US imports could drive prices even higher. Many of these materials cross the border multiple times before reaching their final destination, and in 2024 alone, Canada imported $7.5 billion in US steel and $9.4 billion in aluminum, according to RBC.

The fear of escalating costs has already led some developers to delay projects, waiting for more predictable pricing before moving forward.

Source: Canadian Mortgage Professional

Canadian Housing Market Slowdown, Condo Living, Condo Living, Condo Market, Condo Renters, GTA Condo Market, New Condos