The shadow inventory of condominiums rented out by owners in the Toronto census metropolitan area rose by almost 24,700 units year-over-year to 207,925 as of October 2024.

That data was tracked by the Canadian Mortgage and Housing Corporation (CMHC) and Bullpen Research & Consulting president and owner Ben Myers has analyzed some of the numbers which focus on Toronto’s closely watched condo rental market.

Forty-one per cent of the approximately 512,000 condo units in Toronto were rented out by their private owners last October, continuing a longstanding trend. The estimated percentage of condo units rented out by owners has steadily increased over the years from 19 per cent in 2008.

“Projects got bigger and took longer to get completed, so that discourages end users but encourages investors,” Myers explained. “Units also got more expensive.

“Prices were rising rapidly before COVID and then, really early on in the COVID period when we put in the emergency-level low interest rates, a lot more investors became involved in the market which led to a lot of sales. Those sales are now leading to completions and investors are deciding to rent the units because the (for-sale) market's a little bit soft.

“We might have seen more people sell at completion than we have now," he continued. "There are a lot of investors in a financial situation that they can rent them out at a return that’s not great. But, they feel the market will return in a couple of years (so they) are happy to rent the units out for a few years before they ultimately sell them.”

New condo units increased by almost 35,000

The absolute number of new condo units tracked by CMHC increased by nearly 35,000 in 2024, meaning approximately 70 per cent of the new supply went onto the rental market.

Bullpen had previously estimated about 80 to 85 per cent of all new condo units sold in Toronto were sold to investors, so 10 to 15 per cent of those investor-owned units have either been assigned pre-registration, sold or listed for sale to end-users, or, in rare cases, kept vacant intentionally.

“Some investors want to buy a unit in pre-construction and then assign it to another purchaser six months before completion,” Myers said. “They never want to actually take ownership of the unit.

“Other investors are just going to wait until the unit is complete, so people are willing to pay a little bit of a premium for that ability to walk through the unit.”

Myers said many owners don’t want to sell their units upon completion because so many come on to the market at that time. They’d prefer to hold on to them for a few years to avoid competing with the rush, and possibly being forced to accept a lower-than-desired price.

Some investors never sell the units, but keep them for rental income and then pass them along to their children.

The vacancy rate for purpose-built rental apartments was 2.5 per cent in October, up from the average rate of just under two per cent since 2014, and above the 0.7 per cent vacancy rate for rented condo units late in 2024. The condo rental vacancy rate was 0.6 per cent a year earlier, so the increase was very minor despite the large increase in building completions and units entering the market.

Rents in condos vs. purpose-built apartments

Demand for rental condo units has been very strong because, although they’re usually smaller in size, they’re generally newer and with higher-quality finishes and more amenities than most of the city’s purpose-built apartment stock which was built several decades ago. Those differences have also typically resulted in higher rents.

Units in some new purpose-built rental apartments, however, are renting at a five to 10 per cent premium over those in condos because people are willing to pay more for on-site property management and increased security of tenure.

Myers said some new purpose-built rental apartments owned by pension funds or other organizations with patient capital are now offering units that exceed the quality of those in condos, which is also leading to rental premiums.

A general rule of thumb is that owners expect monthly rents to equal one per cent of what they paid for the condo unit. Bullpen’s research shows rents for a large number of condos with 50-or-more rental listings in 2024 — which were launched over the past 15 years and occupied over the past 10 — aren’t keeping up with price increases in the new condo market.

Myers cited CentreCourt and Centrestone Urban Developments' PRIME Condos near Jarvis Street and Gerrard Street East in downtown Toronto, which launched sales in 2021 at an average price of $1,379 per square foot, as a prime example. Units in the building were renting for approximately $4.66 per square foot last year, resulting in a price-to-rent relationship of 0.34 per cent.

Record number of condo deliveries expected in 2025

A record number of condo building completions are anticipated for this year. That will add another significant amount of new units to the condo rental market that could apply downward pressure on rents, though they could actually increase marginally due to a continuing low vacancy rate.

“The academic theory tells you that a balanced market is somewhere in that four to five per cent range, maybe three-and-a-half to five-and-a-half, and we're still below that,” Myers said. “So we should continue to see rent increases in the market moving forward.”

Myers forecasts a soft sales condo market for this year, but no crash.

“The lines on the graph are going to be pretty linear in 2025,” he said.