Toronto rents see a decline in first quarter of 2025 as supply increased: report

Advertised rents for a two-bedroom apartment and condo units in Toronto declined in the first quarter of the year as supply increased and demand dropped, brought on by a cap on international students and a “sluggish” labour market, according to a new report.

The Canadian Mortgage and Housing Corporation (CMHC) released on Tuesday its mid-year rental market update and found that for purpose-built rental apartments in the city, advertised rent for two-bedroom units dropped by 3.7 per cent compared with the same period last year. For two-bedroom condo rental units, the asking rent declined by 1.7 per cent.

The CMCH attributed the decline to the rise of rental supply.

“Landlords are reporting that vacant units are taking longer to lease, especially in the case of new purpose-built rental units in Toronto, Vancouver and Calgary due to additional competition from well-supplied secondary rental markets,” the CMHC said in its report.

As a result, some purpose-built rental operators are offering incentives to new tenants, including one month of free rent, according to the report.

“Nevertheless, some operators anticipate they may need to lower rents over the next couple of years,” the report said.

Thus, vacancy rates are expected to rise further this year due to “slower population growth and changing employment conditions.”

“As demand struggles to keep pace with new supply, the market will remain in a period of adjustment. This is particularly true in Ontario due to lowered international migration targets, especially in areas near post-secondary institutions,” the report said.

It noted that Ontario, B.C. and Nova Scotia saw a decline in study and work permits in the first quarter of the year, in part due to the federal cap on international student applications.

The CMHC report is also seeing demand softening as youth unemployment and unemployment rates of recent post-secondary graduates are above long-term averages.

“Newer purpose-built rental properties will face more pressure from longer lease-up phases and increased vacancy rates,” the report stated.

“While the market may have abundant supply in the short-term, there is still a need to maintain momentum in new rental supply to meet the needs of projected future population growth and to achieve better affordability outcomes for existing households.”

As advertised rents appear to be easing, rents for occupied units continue to see an increase, albeit at a slower pace than a year ago.

The report found that this is due to tenants paying higher rents at turnover as landlords match current market rents, which are higher than that of the previous leases.

“These increases may also help offset increases in operating costs and cover rising turnover-related costs such as renovations and repairs,” the report said.

As a result, the rent gap in older and newer buildings has narrowed.

“Higher turnover rents in several major rental markets have decreased tenant mobility, leading to longer average tenancy periods and resulting in more substantial rent increases when tenants do move,” the report said.

The CMCH noted that more people will turn to shared living arrangements due to affordability pressures, which would result in more demand for three-plus bedrooms.

“This shift may make it harder for smaller units to attract tenants as households prioritize space-sharing to save money,” the report said.

In Toronto, the rent-to-income ratio has steadily increased and is at 16.4 per cent as of March 2025, the second highest behind Vancouver.

“This shows that rental affordability has been getting worse over time,” the report said.