GTA Rental Construction Surges as Condo Market Stalls, Study Finds
With the condo market facing unprecedented challenges, developers across the Greater Toronto Hamilton Area are shifting their focus toward rental construction, according to new research from Urbanation Inc. The firm's latest report reveals a significant pivot in development strategy as economic conditions reshape the region's housing landscape.
Record Rental Construction Activity
Urbanation's data shows that 9,821 purpose-built rental units began construction in 2025, representing a substantial 42% increase over the 6,908 units that started construction in 2024. This marks the highest annual total for rental construction starts since the 1970s, signaling a dramatic shift in development priorities.
"Some developers are looking past the current softness in the market by starting construction on new rental projects, with an understanding that conditions will improve in the years ahead as condo supply dries up," explained Shaun Hildebrand, president of Urbanation.
By the end of 2025, a total of 27,815 purpose-built rental units were under construction across the GTHA, reflecting a remarkable 77% increase over the past five years. This construction surge occurred despite a rental vacancy rate of 3.7% during the fourth quarter of 2025, the highest level since late 2020 when it reached 5.5%.
Condo Market Faces Record Challenges
The rental construction boom contrasts sharply with the struggling condo market. Urbanation's year-end Condominium Market Survey revealed that 28 active new condominium projects totaling 7,243 units were cancelled in 2025, more than doubling the units cancelled in 2024 and setting a new record high.
Total condo unit sales reached just 1,599 units in 2025, representing the lowest annual result since 1991. This dramatic decline in condo activity has created a vacuum that rental developers are now rushing to fill.
"By the end of the decade we know with certainty there won't be any new condo completions," Hildebrand noted. "What we don't know is how far into the 2030s the supply crunch will last."
Market Dynamics and Developer Confidence
Several factors are contributing to the increased rental construction activity. Hildebrand pointed to declining interest rates, falling construction costs, and the projected decline in condo deliveries as key drivers boosting developer confidence.
"The fact that interest rates have come down has obviously helped developers, and we're also seeing construction costs fall, so that's also beneficial to more development happening," he said. "There are a number of factors at play here that should support more rental construction."
Despite the construction surge, significant challenges remain. The GTHA currently has over 150,000 approved rental units waiting to become economically feasible for development. Even with nearly 10,000 rental starts in 2025, Hildebrand cautioned that this level of activity "won't likely be enough to move the needle on improving affordability."
Rental Market Conditions
The rental market showed signs of easing in 2025, with average rents falling to $2,565 in the fourth quarter, representing a 5.5% decrease from the same period in 2024. Urbanation attributes this softening to several factors including near-record condo completions (approximately half of which are used as rentals), stalled population growth, heightened economic uncertainty, and persistent affordability issues.
Two-thirds of owners of buildings completed since 2000 continued to offer incentives during the last quarter of 2025, with two months of free rent being the most common concession. This competitive environment reflects the increased supply entering the market.
"It was actually good to see that there was one increase in development activity that happened last year amidst the big drop in condo construction," Hildebrand observed. "Hopefully we can continue to see that growth into the next few years."
The research suggests that once economic uncertainty diminishes and the rental market stabilizes further, developer confidence should continue to improve, potentially unlocking more of the 150,000 approved rental units currently in the development pipeline.
