Executive Summary
As the Canadian multi-family real estate sector faces a shifting, complex landscape shaped by elevated interest rates, demographic shifts, and policy headwinds, many investors have been forced to reevaluate their strategies across Canada. At Gentai Capital, we take pride in our “all-weather” market-agnostic strategy to produce consistent returns, generating over 50 consecutive quarters of distributions from our flagship mortgage investment corporation. Our flexible opportunistic investment mandate, coupled with over 25 years of average experience among the credit committee members, have helped us defend our strong returns over this extended period, covering a variety of market conditions.
In assessing the potential risks and returns amidst current Canadian market conditions, we have considered comparative analyses of Gentai Capital’s key Canadian markets (Vancouver, Toronto, Calgary, and Victoria) against a historical backdrop. Based on our findings, we continue to believe in the value of opportunistic commercial real estate lending for both investors and developers.
1. Market Overview: 2025 Snapshot
Vancouver
- Vacancy Rate: ~1.2%
- Cap Rates: 3.75–4.25%
- Outlook: Despite persistent affordability challenges and stringent zoning regulations, the multi-family sector in Vancouver remains robust, supported by immigration and a limited development pipeline. Cap rates have modestly expanded to the low-4% range, reflecting the higher cost of debt. Vacancy remains tight below 1.5%, and moderate rent growth continues.
Toronto
- Vacancy Rate: ~1.5%
- Cap Rates: 4.0–4.5%
- Outlook: Toronto is characterized by significant supply-demand imbalance, record immigration and constrained rental inventory. Cap rates have softened slightly, averaging 4.25%, with institutional investors maintaining strong interest. Rent escalations have moderated from 2023 highs but remain elevated relative to historical norms.
Calgary
- Vacancy Rate: ~2.4%
- Cap Rates: 4.75–5.25%
- Outlook: Calgary has emerged as a high-yield outlier. Following a period of underperformance post-oil collapse, the market is experiencing renewed momentum bolstered by interprovincial migration. Cap rates remain in the mid-to-high 4% range, with double-digit rent growth in several submarkets.
Victoria
- Vacancy Rate: ~1.0%
- Cap Rates: 4.0–4.5%
- Outlook: As a smaller, supply-constrained market with a stable government and education-driven tenant base, Victoria offers defensive characteristics. Vacancy hovers near 1%, and investor appetite remains strong despite higher financing costs. Cap rates average 4.1%. The market is smaller and less liquid but benefits from a stable tenant base and limited new development capacity due to geographic constraints.
2. Historical Parallel: The Early 1990s
Interest Rates
- 1990s Context:
The Bank of Canada raised its overnight rate aggressively, peaking at ~13.8% in 1991 to combat inflation. Borrowing costs rose across the real estate sector, with 5-year mortgage rates exceeding 12%, making both ownership and investment financing increasingly unaffordable. - 2025 Context:
The current overnight rate is 4.95% (June 2025), well below the 1990s peak however financing remains restrictive relative to compressed CAP rates and negative leverage is common in urban multifamily transactions. - Investor Implication:
Cash flow coverage and operational efficiency should be prioritized to mitigate downside risk. Today’s lower nominal rates are still restrictive given compressed cap rates, particularly in Vancouver and Toronto.
Housing Market Correction and Affordability Shifts
- 1990s Context:
Ownership affordability decreased sharply heading into the 1990s, and home prices corrected significantly—Toronto and Vancouver both saw 20–25% nominal declines from 1990–1995. This pushed households into the rental market and drove increased demand for multifamily rental product. - 2025 Context:
Homeownership remains out of reach for many. Elevated mortgage qualification rates (stress tested above 7%) have deepened the renter pool structurally rather than cyclically. - Investor Implication:
The current rental demand base is more durable than in the 1990s as it is driven by policy-induced mortgage barriers, long-term immigration, and generational affordability gap as opposed to cyclical dislocation. This supports a stronger rent growth outlook even in a high-rate environment.
Rental Fundamentals
- 1990s Context:
Vacancy rates hovered between 2.5%–3.5% in major markets. Rent growth was modest (~1–2% annually) as wage growth slowed and the economy moved through a recession. Tenants were sensitive to pricing, and landlord pricing power was limited. - 2025 Context:
Vacancy rates are historically low across all four major markets (1.0–2.4%), with annual rent growth ranging from 5.5% to 10%. Structural demand outpaces supply, driven by immigration, limited new construction, and delayed homeownership transitions. - Investor Implication:
Investors benefit from stronger fundamentals than in the 1990s but must navigate rent regulation in some markets. The challenge today is not in tenant demand, but in aligning rental growth potential with regulatory constraints and rising expenses.
Development Pipeline and Supply Dynamics
- 1990s Context:
Development activity dropped significantly due to interest rates, recessionary conditions, and oversupply from the late 1980s. Housing starts nationally declined from over 200,000 units in 1989 to ~166,000 by 1991, with limited multifamily construction. - 2025 Context:
New construction remains active in some markets, but high costs, softening valuations, and entitlement delays are curbing starts—especially in Toronto and Vancouver. CMHC-financed rentals have helped support the pipeline but starts remain below population-driven demand. - Investor Implication:
Supply constraints today are more structural than cyclical, meaning upward rent pressure is likely to persist even if economic conditions soften. Existing stock with in-place cash flows will continue to benefit from supply scarcity.
Conclusion
The multifamily real estate markets in Vancouver, Toronto, Calgary, and Victoria are entering a phase of readjustment—not dissimilar to the early 1990s. For multifamily investors, this presents both risk and opportunity. Careful market selection, capital structure discipline, and an active approach to asset management will be critical in realizing returns over the coming period.
Gentai Capital stands ready to support aspiring real estate investors and experienced real estate operators with credit solutions that are both informed by the lessons learned from past cycles and tailored to the realities of the current market. Our highly experienced commercial lending team has nearly 100 years of combined real estate lending experience are eager to discuss your next opportunity.
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