The State of Toronto’s Rental Market Heading Into 2025

Brought to you by Tony Slavin, real estate broker since 1988 and currently working with Right At Home Realty, this analysis explores the current trends in Toronto's rental market. If you're a renter looking for an apartment in Toronto, now might be the time to start bargain hunting. Recent data paints a worrying picture for property investors, both big and small. This shift is happening even before the anticipated population decline in Canada. As we enter this period, the rental market appears to be heading into a challenging phase.

Rents Are Falling, Vacancies Are Rising

The rental market in Toronto is at a crossroads. There's a noticeable increase in condo and purpose-built apartment buildings reaching completion, just as population growth is slowing. Already, we see rents decreasing and vacancies increasing—a troubling trend for those who own rental properties. More rental units are flooding the market than the current demand can absorb, setting the stage for what could be a challenging period in the real estate sector.

The numbers confirm these trends: the number of properties listed for rent has jumped by 46.6% year-over-year, while the absorption rate—or the ratio of leased properties to those listed—has dropped to 60% from 68% in 2023. Simply put, there is an oversupply of rental units, and fewer people are willing or able to move into them. Adding to this complexity, the economic downturn is prompting more people to share living spaces, with multiple tenants cramming into smaller apartments to save on rent.

Record High Condo Completions

In 2024, condo completions in Toronto have soared to record levels, with around 23,000 units completed and registered. Many of these new condos are investor-owned, and they are hitting the rental market as soon as they get the keys, contributing even further to the available rental inventory. When looking ahead to 2025, the picture gets even more concerning, as the number of condo completions is expected to increase even further.

These completions coincide with high vacancy rates, and rental prices are being pushed downward due to an overwhelming supply. The reality for condo owners, especially those who purchased units as investments, is that they will need to compete fiercely to attract tenants, often dropping their prices just to keep their units occupied.

The Threat of Purpose-Built Rentals

On top of the condo market, there is also an increase in purpose-built rental apartments—many of which are owned by large financial institutions like pension funds. These large landlords are competing for the same pool of tenants, further driving vacancies up. Purpose-built rentals are projected to add an additional 5% to the existing rental stock in Ontario, which is pushing vacancy rates higher. Currently, vacancy rates are hovering around 2.7%, but there is every indication that this number will continue to rise if demand does not catch up.

A Softening Economy and Rising Incentives

Economic uncertainty also plays a key role in these developments. The economy's current state is prompting renters to delay moving or seek shared living arrangements. We are already seeing instances reminiscent of the pandemic, where landlords are offering incentives such as free rent to attract tenants. This practice, once seen as an emergency response during COVID-19, is now re-emerging as landlords struggle to fill vacancies.

Even amid all this uncertainty, major players like pension funds continue to invest in Toronto's rental market, pumping billions into new apartment buildings. This suggests that there is a long-term strategy at play, despite the short-term challenges.

What Does This Mean for Tenants and Landlords?

For tenants, this situation means more bargaining power. Falling rents and increased incentives mean that now could be an excellent time to negotiate better rental terms. For landlords, particularly small investors, the current and upcoming market conditions are likely to bring financial strain, with rental rates trending downwards and increased competition making it harder to secure tenants.

The next 6 to 12 months are likely to be crucial in determining the trajectory of Toronto's rental market. Both landlords and tenants need to stay informed and prepared to adapt as the market dynamics shift.

Stay Informed

If you have any questions about navigating the Toronto rental market, or if you're considering your next move as a tenant or landlord, feel free to reach out. I'm here to help you make informed decisions in these uncertain times.

If you found this analysis helpful, reach out for a no-obligation call to discuss your real estate needs. Are there any questions I can help you with?

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