Canada's residential rental sector defies economic headwinds: report

Morguard’s latest Q1 2025 Canadian Economic Outlook and Market Fundamentals report has highlighted ongoing strength in Canada’s multi-suite residential rental sector, which continues to draw investor interest and post elevated rent growth, particularly for larger units.

The report finds that investor demand for high-quality multi-suite residential properties surpassed the available supply during the first quarter. Total transaction volume in this segment reached $583 million—one of the lowest levels since Q3 2020—but not due to waning interest. Instead, limited availability constrained sales activity. Investors targeted core-quality individual assets and portfolios offering attractive yields, with concrete high-rise towers and recently constructed buildings drawing particular attention.

Larger units lead rent increases

Rental prices for larger units rose significantly. According to Rentals.ca/Urbanation data cited in the report, average asking rents for three-bedroom apartments in Canada’s 35 largest markets increased by 3.7% year over year as of March. In contrast, one- and two-bedroom units saw asking rents decline by 2.2%, while studio rents edged up by 1.8%. Morguard attributes this pattern to high homeownership costs, inflationary pressures, and economic uncertainty leading many families to opt for larger rental units instead of purchasing homes.

Retail real estate investment also saw growth in the first quarter. Morguard recorded $980 million in transaction volume for retail assets, the highest in five quarters. A key contributor was Primaris REIT’s $585 million acquisition of Edmonton’s Southgate Centre and Ontario’s Oshawa Centre. The report noted increased investor interest in retail properties with proven performance, such as grocery-anchored centres.

In contrast, the office sector saw little change. National vacancy rates hovered at elevated levels, with Class A office vacancy reaching 17.6%. Downtown vacancies remained close to 20%. Leasing activity showed minimal variation from previous quarters as businesses delayed expansions in response to economic uncertainty.

The industrial sector experienced easing in its previously upward trend in availability. The national availability rate rose slightly to 5.0%, driven by a slower pace of new supply and a rise in occupancy totalling nearly 4 million sq ft. Private capital remained the main driver of industrial property sales, while owner-users continued to seek alternatives to high lease rates.

Central bank maintains rate-cutting path

The Bank of Canada maintained its rate-cutting policy during the quarter, lowering its policy rate by 25 basis points in both January and March. However, the central bank cautioned that monetary policy alone may not be sufficient to counteract the effects of growing trade tensions, especially with the introduction of US tariffs affecting Canadian exports.

Source: Canadian Mortgage Professional