Canada's Real Estate Market: Small Investors Give Way to Institutional Giants Amid Economic Pressure

In recent years, institutional investors funding entire buildings in Canada have steadily edged out small-scale businesspeople who used to purchase homes before construction to later rent them out, according to Bloomberg.

Small investors were key players in Canada’s real estate market for decades, supporting the growth of multi-family housing. But rising borrowing costs, falling rental income, and declining property values have forced many to retreat. Meanwhile, apartment construction backed by institutional money hit record levels last year.

Blackstone Inc. became one of Canada’s largest residential developers when it acquired Tricon Residential, a Toronto-based firm. Several of the country’s largest pension funds are now building entire new neighborhoods on the sites of old shopping centers. For instance, a public-sector pension fund in British Columbia plans to redevelop Cloverdale Mall in Toronto, while smaller funds are financing dozens of individual buildings across the country.

Developers are shifting their strategies, targeting large investors over individuals. “Individual investors are no longer the engine of the housing market—this space is now occupied by institutional capital,” said Capital Developments president Carlo Timpano. He considered building a 50-story tower in Toronto, but instead opted to construct it as a rental property due to lower returns from condominium sales. “We’re speaking with new capital partners to explore building five or even ten buildings instead of just one or two,” he said.

The exit of small investors has temporarily slowed housing construction, which may affect Canada’s political climate, as several cities remain among the world’s least affordable. Housing affordability has become a top legislative priority, prompting Prime Minister Justin Trudeau to introduce new stimulus measures last year.

While the condo market is still oversupplied, reduced construction could ultimately benefit those launching new projects. By the time these buildings are completed in four to five years, competition among landlords will likely be lower. “We’ll be delivering our product into an undersupplied market,” said Timpano, whose firm is building a rental tower in downtown Toronto.

Other developers are taking advantage of this shift, helping offset the condo construction slowdown. According to Canada Mortgage and Housing Corp. (CMHC), the country built over 245,000 housing units in 2024—a 2% increase—mostly driven by rental housing. This was partly because institutional backers rescued condominium projects that failed to secure enough pre-sales to proceed.

Christina Iacoucci, head of Canada at global real estate investor BGO, noted that many developers went through the entire permitting process only to find themselves unable to break ground. “That gave us a lot of great opportunities,” she said. BGO manages about CAD 30 billion ($21 billion) in Canadian real estate assets on behalf of pensions, insurers, and charities and currently has ten rental buildings under development.

Apartment construction is expected to grow in the coming years, though the sharp slowdown in condo starts will likely drag down total housing figures. CMHC predicts that housing starts in 2025 will total 226,600–243,000 units, down from 2024. “We’re nowhere near where we need to be to make housing affordable,” said CMHC Deputy Chief Economist Tanya Burass-Ochoa. “We need to sustain and accelerate current build rates.”

The portal Norada notes that real estate market activity slowed in 2023 and early 2024 due to higher interest rates. But by late 2024, signs of recovery emerged. Sales rose 2.8% in November compared to October and were up 18.4% from May, when rates first started falling. Recovery was strongest in major cities like Vancouver, Calgary, Toronto, and Montreal.

Home prices also began to rise, with the national MLS® Home Price Index climbing 0.6% in November—the largest monthly gain since July. Analysts now believe the stagnation period is ending, opening the door to moderate growth. Lower interest rates from the Bank of Canada made mortgages more accessible, prompting hesitant buyers to return. Compared to November 2023, overall market activity rose 26%, and average prices increased 7.4%.

Looking ahead, experts expect further rate cuts to drive demand and possible loosening of mortgage rules to improve accessibility. A recovering economy is also set to boost consumer confidence, spurring more real estate activity.

The Canadian Real Estate Association (CREA) forecasts high demand in Greater Toronto, driving prices up. Property in British Columbia, especially Vancouver, is expected to become more expensive. Alberta—particularly Calgary and Edmonton—is also predicted to see above-average appreciation. Montreal is likely to post modest but steady growth. It’s worth noting that most foreigners are still barred from buying Canadian property.