Construction workers finish up their shift at a condominium being built in Toronto’s east end on July 25, 2024. New data show more new construction of apartment rentals than condos, a sharp reversal from three years ago.Sammy Kogan/The Globe and Mail
With the market for newly built condominium apartments on its knees, real estate developers are discovering that pivoting a project to instead deliver purpose-built rental requires a wholly different approach.
That pivot is accelerating a trend: the number of condominiums under construction continues to slide in Canada’s largest market, the greater Toronto region, but the construction of new purpose-built rental apartments is soaring, having surpassed condo construction for the first time in decades.
“At the end of Q2-2026 we had 38,261 condos under construction and 36,328 purpose-built rentals under construction,” said Pauline Lierman, vice-president, market research with real estate analysts Zonda Urban. “I do ongoing checks so we can add any new starts in the system. As of the end of last week, July 24, this had flipped – to 38,841 purpose-built rental and 36,635 condo. This changed rapidly during July with an additional 1,626 condos moving into occupancy and 2,513 new rental starts.”
It’s a dramatic reversal from just three years ago when at the beginning of 2023 there were 101,219 condo apartments under construction in the Toronto region, versus just 17,247 rental apartments.
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The transformation in the market has driven many pure-condo developers to reassess the future of their businesses. In May, Capital Developments put its money and organizational energy behind its own rental pivot by launching Address, a separate company that will focus solely on purpose-built rental. The motivation, according to Address and Capital president Carlo Timpano, is to make it clear that it’s not a condominium company trying to build rental; it’s a development company focused on rental’s unique market challenges.
“I think there is a subset who are doing [rental] off the side of their desk, which for me means taking a condo building and just declaring it’s now rental … with the ultimate goal of pivoting back to condo development,” said Mr. Timpano. “If we’re going to do this, we’re going to do this right, and we’re going to send a signal to the market.”
About half the sites in Address’s pipeline of rental development were originally intended to be condominiums, the others were new acquisitions. But there are many reasons why a building that was intended to be a condominium can’t just be turned into a rental building overnight.
“In a condo you sell the plan once,” said Michael Tsourounis, co-CEO and managing partner of Hazelview Investments, an owner and operator of rental buildings with $11-billion in assets. “In a rental building, as a developer … you’re selling that building 365 days a year, forever.”
Hazelview both buys existing rental buildings – on July 14 it announced it had raised $150-million from investors to continue shopping – and has about 3,000 units of new rental under construction across its portfolio. In June, Hazelview broke ground on a downtown Toronto purpose-built rental building at 383 Cleveland St. that had initially been intended for condo development, but will now include 43 affordable rental and 33 accessible units among the 217 apartments planned.
But when Mr. Tsourounis looks at condo sites to convert or condo builders trying to create new rental he has noticed some habits from the condo market crop up.
“You’re not trying to maximize everything to profitability on Day 1,” Mr. Tsourounis said of the difference between building condos and building rental. “Flooring that’s cheap today might have to be replaced four times in 10 years, over that period you spend three times the money.”
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Condo builders are also experts at maximizing the dollar per square foot of living space with an eye to shrinking it to the lowest tolerable ratio. However, that efficiency may not wear well over time.
“We do 50,000 surveys a year, we like to understand why tenants are moving, the answer is never they left because the unit was too big; but they certainly will tell us if it’s too small,” Mr. Tsourounis said. “We have certain design standards where a den can actually be used as a proper home office, we were seeing in some condos a den was a glorified walk-in closet.”
But even before you begin designing suites, Mr. Timpano notes that scale and financing expectations from condos must also be altered.
The taller a building, the more apartments in it, the higher the construction cost, and Mr. Timpano said banks have been hesitant to extend construction loans to mega-scale rental buildings because unlike a condo – where the risk falls on the individual buyers showing up to buy the apartments when construction is complete – a rental building might have to be sold as a single asset at some point, increasing the so-called “takeout risk” for the lender.
“Even if you’re a pension fund, at some point you have to be able to have the option to sell that tower to someone and with a 70-storey rental tower you could be looking at a billion-dollar asset,” he said.
An example is at 88 Isabella Ave. where Capital had designed a 62-storey condo tower with 800 apartments. When it pivoted the site to rental Address spent almost 9 months repositioning the site, including scaling down its plans to 49 storeys and just over 700 apartments, numbers that construction lenders are more amenable to in the rental building space.
Mr. Timpano said the company’s determination to plant a flag in rental development took about 12 months to crystalize and gives much of the credit to Capital’s founders Todd Cowan and Jordan Dermer, former executives in the TrizecHahn property empire who spent 10 years in Europe with the TriGranit arm of the company building millions of square feet of commercial and mixed-use real estate prior to the company being sold to Brookfield Properties Corporation and Blackstone Group for US$9-billion in 2006. Capital was launched in Canada in 2007, with backing from former TrizecHahn owner and billionaire Peter Munk, and went on to build about 4,000 condo units with about 2,000 apartments of condo and rental under construction today.
“It’s their lens and their entrepreneurship that makes the entire company excited about taking this next step,” Mr. Timpano said of the Mr. Cowan and Mr. Dermer. “It’s a big, big move, and we wouldn’t be doing it without their support and their leadership.”