For years, the rental market has been supported by something that doesn’t show up cleanly in the data. A large share of new condo units has ended up in the rental pool, with investor-owned units effectively acting as “shadow supply” and filling the gap where purpose-built rental construction has not kept pace. In the GTA, nearly 70% or more of condos are held as investment properties, underscoring how significant this channel has been in supporting rental demand.
In Q1 2026, for the first time in three decades, there were zero new project launches in Toronto, with Q1 sales for new condo projects falling 52% from a year ago to a 35-year low, according to the Urbanation Inc. report. The pullback reflects both weaker investor demand and constrained development economics. Higher rates and negative cash flow have reduced investor participation, while elevated construction costs and tighter financing have limited new project launches. As fewer projects reach required thresholds, the pipeline is thinning, with completions projected to decline more than 60% from recent peaks by 2028.
Chart 1: Scheduled Condo Apartment Completions by Year, Under Construction Developments in the GTA, Jan 2026
Source: Urbanation, CMHC, Statistics Canada
Since condos have been supplying a meaningful share of rental units, a slowdown here directly reduces effective rental supply. There has been some response on the purpose-built side, with construction gaining momentum as policy support improves development economics. In parallel, a handful of stalled condo projects are being converted into rental buildings, often redesigned with larger, more livable layouts that better align with long-term tenant demand. These are positive developments, but not enough to close the gap. Purpose-built rental construction remains well below the scale historically delivered through condominiums. Put simply, “the system is adding more rental units – just not at the scale it is losing condo supply”.
Chart 2: Completions and Scheduled Deliveries for Units Under Construction – Greater Toronto Area
Source: Urbanation, CMHC, Statistics Canada
Chart 3: Apartment Units Under Construction – Greater Toronto Area
Source: Urbanation, CMHC, Statistics Canada
The combined effect is evident in the forward supply profile. Total deliveries are expected to peak in the near term before declining meaningfully as the condominium pipeline rolls off, with projections indicating that annual supply growth could fall from ~23,000 units between 2021 and 2024 to roughly 10,000 – 12,000 units over the next decade, even as purpose-built rental accounts for a larger share of new construction. This reflects a structural shift rather than a temporary imbalance and results in a net reduction in total supply.
Current market conditions continue to reflect the tail end of elevated completions, which has kept rent growth relatively muted. However, this is largely backward-looking. As the pipeline thins and new deliveries slow, vacancy is expected to tighten gradually, with the impact becoming more visible as the market moves beyond the current supply cycle.
The implications are uneven across participants. Renters are likely to face a more constrained environment over time, with fewer new units coming to market and reduced optionality. Developers, particularly within the condominium segment, remain challenged by weaker pre-sales, higher financing costs, and project viability constraints, limiting new launches and reinforcing the decline in future supply.
In contrast, existing rental owners are positioned to benefit as the market rebalances. With fewer competing deliveries, stabilized assets are expected to see improving occupancy and stronger pricing power as supply-demand conditions tighten. At the same time as forward supply is declining, transaction activity has picked up as owners rebalance portfolios in response to higher interest rates, softer near-term rent growth, and tighter liquidity. Assets are being underwritten on current conditions, and that does not fully reflect where supply is heading.
This divergence between current pricing and forward fundamentals is notable. It creates an environment where acquisition opportunities can emerge at cap rates that are more reflective of near-term conditions, despite improving medium-term supply dynamics.
“Tighter supply ahead, better entry today” is increasingly reflected in both the pipeline and transaction market. For P-REIT, the portfolio will be concentrated in existing income-producing assets that stand to benefit from tightening supply conditions, while the current transaction environment provides an opportunity to deploy capital at more attractive entry points relative to recent years. The slowdown in condo construction represents a change in the primary source of rental supply, and as that adjustment works through the system, its impact is likely to become increasingly visible in both vacancy levels and rent growth.
About Peakhill Opportunity REIT
Peakhill Opportunity REIT exists to unlock long-term value in Canada’s multifamily housing sector by capitalizing on market dislocation, constrained supply, and shifting investor sentiment. Through a flexible, open architecture approach, we partner with families, institutions, and developers to acquire and enhance income-producing apartment assets—delivering resilient, tax-optimized returns and building enduring relationships across cycles. We target undervalued multifamily properties trading at a meaningful discount to replacement cost, with a focus on value-add potential, off-market access, and strategic partnerships. Our investment criteria span the capital stack—including equity, preferred equity, and mezzanine debt—and include wholly owned acquisitions, joint ventures, and structured transactions tailored to meet the needs of family owners and institutional partners. By investing in markets with strong rental demand and limited new supply, we aim to deliver inflation-protected, cycle-resilient returns through disciplined execution and long-term asset stewardship.
For more information on Peakhill Opportunity REIT, please visit peakhillcapital.com/peakhill-opportunity-reit/.
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