Purpose-built rentals in real estate refer to residential buildings or units specifically designed and constructed for the purpose of being rented out to tenants rather than being sold to individual owners. These properties are usually controlled by a single organization, such as a real estate developer, investment firm, or property management company, which oversees the leasing and upkeep of the units. They are designed to provide long-term rental accommodation. A significant portion of the real estate market is made up of purpose-built rentals, particularly in areas where homeownership is less accessible or where there is a high demand for rental space.

Developers or investors build these properties with the goal of holding onto ownership while running rental businesses. These kinds of developments usually offer a range of sizes and styles of units to cater to different demographic groups. For added appeal, they offer features like fitness centers, swimming pools, and common areas. The layout of purpose-built rental buildings is meticulously designed to meet the housing needs of certain markets, with high rental demand areas receiving particular attention. Purpose-built rentals stabilize the rental housing supply in markets where there are shortages or issues with affordability when they have enough supply on hand and professional property management on board.

The Growing Demand for Rental Properties

Demand for rental properties has skyrocketed in Canada over recent years, and this trend continues today. According to Canada Mortgage and Housing Corporation (CMHC), Canada’s national vacancy rate for purpose-built rental apartments dropped significantly between 2017 and 2022 to 1.9% from 3.1% – reflecting both tightening rental market conditions as well as greater demand across Canada for rental units. Multiple factors drive this demand for rental housing options, including affordability issues related to skyrocketing home prices in many Canadian cities that have made homeownership increasingly unaffordable. Therefore, rental has emerged as a more viable and economical alternative. Rental properties provide greater flexibility for young professionals and mobile workers who may require relocation for professional opportunities. Lifestyle trends towards urban living and the access to amenities provided by purpose-built rentals also play a critical role. Canada’s dynamic immigration policies continue to attract new residents who initially go for rental accommodations. As our population ages, many seniors also opt for rentals offering community amenities and maintenance-free living arrangements.

Demand for rental properties is expected to remain strong over the long run due to various long-term influences. Projections by CMHC and other real estate analysts suggest that Canada requires between 3.5 to 5.8 million new homes by 2030 in order to restore affordability. Population growth is one of the primary drivers, as Canada’s projected population rise is expected to range between 40.1 and 47,7 million by 2043, according to Statistics Canada – driving increased housing demand across both rental and non-rental segments of the market. Urbanization is expected to remain on an upward trend, with more individuals moving into cities and seeking rental accommodations. Economic factors, including uncertain job markets and gig economies, will likely prompt more individuals to turn towards renting in the foreseeable future. Furthermore, federal and provincial governments have increasingly recognized purpose-built rentals as one solution to housing affordability concerns, which may prompt policies that boost this sector further.

Canada is experiencing a remarkable evolution in its multifamily market with the rise of purpose-built rentals driven by changing demographics, lifestyle preferences and economic pressures. These developments, designed primarily for renting rather than selling, are growing increasingly popular due to their ability to meet diverse housing needs with features like in-built amenities and convenient urban center locations. Demand for such properties is driven by factors like high home prices, urbanization, and strong immigration flows; cities like Toronto, Vancouver, Montreal, and Ottawa have become key investment spots as a result. Navigating this market requires an in-depth knowledge of various provincial and municipal regulations, such as rent controls and zoning laws, which can have a profound effect on investment returns. Investors and developers who focus on quality, sustainability and adaptability in purpose-built rentals could see substantial returns as this segment of housing continues to expand.

Demographics Driving the Trend

Understanding the demographics driving rental property growth is vitally important to investors and developers hoping to capitalize on it, with several key demographic groups driving demand in this market segment. Young adults – particularly millennials (born between 1981 and 1996) and Gen Z (born after 1996) – account for an important share of the rental market for various reasons. Many young adults postpone homeownership due to student debt, delayed career launches and high housing prices. Renting is increasingly attractive as people value the flexibility and amenities offered by urban rentals, making moving quickly to take advantage of job opportunities more viable than owning their own space. Financial constraints make renting more financially feasible for many young adults than buying, as living costs rise and wages remain static. At the same time, baby boomer households continue to sell off family homes in favor of smaller rental units with amenities catering specifically to seniors, such as fitness centers, social spaces and concierge services – renting offers more manageability as it eliminates home maintenance and repair expenses while freeing equity from their houses for retirement or other purposes.

Canada’s liberal immigration policies continue to attract an ever-increasing stream of new residents who frequently need rental accommodations as they make Canada their new home. Renting may be more familiar to immigrants coming from countries where homeownership is less prevalent; financial factors like building credit and saving for a down payment make renting essential as the first step on their new path toward homeownership. Canadian households consisting of one person have increased over time due to shifting social norms; more people are opting to live alone due to delayed marriage, divorce or personal preference. Single professionals typically enjoy the ease and lifestyle benefits of urban rental properties. With the aging population comes an increase in the number of elderly individuals living alone who choose rental accommodations. Students and young professionals, both domestic and international, contribute significantly to rental demand by seeking short to medium-term housing solutions that suit them. They tend to prefer rental units near educational institutions and employment hubs because they include amenities such as study spaces, high-speed internet, and social areas designed specifically for them.

Attractive Markets for Multifamily Investments

As demand for purpose-built rentals grows across Canada, certain markets present themselves as particularly lucrative multifamily investments – marked by strong population growth, solid economic fundamentals and supportive regulatory environments. The Greater Toronto Area (GTA) remains one of the premier markets for these investments due to strong population growth driven by both natural increase and immigration; its status as Canada’s economic center, drawing talent from diverse fields; and sustained demand for rental housing units. Limited land availability and stringent zoning regulations have limited housing supply, leading to rising rents, yet recent investments in public transit infrastructure present opportunities for transit-oriented rental developments.

British Columbia’s Lower Mainland and Vancouver, in particular, offer significant opportunities due to geographical considerations like mountains and water bodies that restrict housing supply, its international appeal that attracts both domestic and foreign renters, as well as its growing tech industry, which draws young professionals. Even after regulatory measures intended to cool its market have taken effect, Vancouver remains appealing to foreign real estate investors.
Montreal in Quebec is drawing increasing interest in multifamily investment due to more accessible entry points than Toronto and Vancouver. It is appealing to renters due to its vibrant culture and lifestyle, as well as numerous major universities that drive rental demand and its rapidly developing tech and AI sector, which draws professionals. Ottawa is emerging as an attractive multifamily investment market due to stable government employment, which provides regular rental demand, and its expanding tech sector, which draws young professionals. Two major universities are attracting students with strong student markets. This city is experiencing steady population growth, driving housing demand higher and further stimulating construction activity.

Kitchener-Waterloo stands out as an emerging secondary market due to its tech hub attracting young professionals and population growth, Hamilton for its proximity to Toronto with more affordable housing options, Calgary with its growing economy offering potential despite economic challenges, and Halifax as one of Atlantic Canada’s largest cities with both population expansion and diversification taking place simultaneously.

Regulatory Considerations

Canadian investors and developers need to understand a complicated web of federal, provincial, and local regulations in order to make money in the purpose-built rental market. Provincial rent control rules, which impact the capital returns on rental assets, differ significantly. Ontario follows rent control laws except for newly built units rented before November 15, 2018, in which case landlords are allowed to set market-based rents between tenants. On the other hand, British Columbia controls rent on all residential leases, and the province sets the yearly maximum for rent increases. In Quebec, rent increases are not explicitly capped, and landlords are required to provide justification for such increases using pre-established standards. Alberta allows rents to fluctuate freely as market conditions dictate – both regulations must be understood for accurate financial projections and effective investment strategies.

Zoning and land use policies at the municipal level have an enormous influence over rental developments, significantly diminishing their viability. With inclusionary zoning, new development must include affordable units; density bonusing allows greater density in exchange for community benefits like rental units. Many cities promote dense developments near transit hubs with transit-oriented development policies while relaxing regulations for secondary suites to stimulate rental markets further. Purpose-built rental projects incur high development costs that include Development Cost Charges (DCCs), Community Amenity Contributions (CACs) and parkland dedication fees. However, such expenses may be offset through reductions or deferrals offered to encourage rental development. Government initiatives at various levels aim to boost the rental market. Federal programs like the National Housing Strategy and Rental Construction Financing Initiative by CMHC offer immense support, along with provincial initiatives like Ontario’s Development Charges Rebate Program or tax incentives offering exemption or reduction on properties being developed in Ontario. Enacting environmental standards necessitating buildings to meet higher energy efficiency levels and be designed with climate resilience in mind has added costs, though green building incentives may help offset them. Furthermore, strong tenant protection laws in many provinces dictate property management strategies with stringent rules regarding evictions, maintenance standards and deposits that impact both operating costs and investment returns – further raising construction costs but offsetting some expenses with green incentives.

Purpose-built rentals represent significant opportunities for investors, developers, and other real estate sector stakeholders in Canada’s multifamily rental market. Driven by changing demographics, lifestyle preferences and economic pressures, demand for rental properties should remain strong over the coming years. Key markets such as Toronto, Vancouver, Montreal and Ottawa remain among the premier real estate investment destinations; however, secondary markets have also emerged as lucrative investment locations. Success requires an in-depth knowledge of local market dynamics, demographic trends and complex regulatory environments in these secondary markets to achieve success in this arena. As Canada addresses housing affordability challenges and shifting housing needs, purpose-built rentals will play an increasingly vital role in its housing ecosystem. If one can successfully navigate its complexities, the rewards could be substantial. Investors and developers who take a long-term view, focus on quality and sustainability, adapt to shifting market conditions, and invest in purpose-built rental units will be well-positioned to capitalize on Canada’s multifamily rental sector’s continued expansion.