The Impact of Canada's Sudden Population Contraction on Real Estate and Rental Markets

Canada's real estate and rental markets are undergoing a seismic shift as the country grapples with its first population contraction since the 1940s. According to a report by Statistics Canada, the nation's population declined by 76,068 people (-0.2%) in Q3 2025, driven by a sharp drop in non-permanent residents-particularly international students and temporary workers-offset only partially by sustained permanent immigration according to Statistics Canada. This demographic reversal, part of a broader government strategy to reduce temporary immigration to 5% of the population by 2027, is reshaping demand dynamics across property markets, creating both risks and opportunities for real estate investors and REITs.

Demographic Shifts and Real Estate Demand

The population decline has hit Ontario and British Columbia hardest, with both provinces recording declines of -0.4% and -0.3%, respectively according to Statistics Canada. These regions, long reliant on immigration to fuel housing demand, are now experiencing a cooling in both residential and commercial real estate. In Ontario, housing starts across 34 municipalities fell 34% compared to the 2021-24 average, while condo starts plummeted 51%. Similarly, British Columbia's resale markets showed tentative signs of recovery in mid-2025 but remain constrained by affordability challenges and high inventory levels according to CMHC data.

The most striking example of this cooling is Toronto's condo market, which experienced a historic correction in 2025. Inventory levels and price declines reached multi-decade lows, reflecting a structural mismatch between supply and demand. Meanwhile, Vancouver and Montreal saw commercial real estate investment volumes contract by 33% and 25%, respectively, in the first half of 2025 according to Koneko Research. These trends underscore a broader recalibration of real estate fundamentals, driven by demographic-driven demand shifts.

REIT Performance and Investor Adaptation

Canadian REITs have navigated this volatile environment with mixed results. While the broader commercial real estate market contracted, the S&P/TSX Composite REIT Index delivered a total return of +10.5% in 2025, despite a -6.7% dip during U.S. tariff fears in April according to Altus Group. The multifamily sector, however, has emerged as a relative bright spot. Investment volumes in purpose-built rental housing rose over 20% in 2025, driven by a persistent housing supply deficit and supportive public policies.

Investors are increasingly favoring sectors with resilient demand, such as multifamily, industrial, and data centers according to Altus Group. For example, Toronto and Ottawa have seen strong rental demand, even as high-rise condo markets struggle according to PwC analysis. Developers are pivoting toward ground-oriented housing and multi-generational designs to align with shifting demographics, including a growing 35–50 age cohort and a declining 20–35 cohort according to Altus Group. This shift is also evident in Calgary, where investors are cautiously adapting to rising vacancy rates in purpose-built rentals while exploring the creative reuse of underutilized office spaces according to PwC analysis.

Strategic Positioning for a Cooling Market

The demographic-driven slowdown necessitates a recalibration of investment strategies. First, investors should prioritize markets with structural demand, such as purpose-built rentals in high-growth cities like Ottawa and Toronto. These assets benefit from long-term affordability constraints and a housing supply deficit according to RBC analysis. Second, industrial and logistics real estate remain attractive, given e-commerce growth and supply chain reshaping according to Altus Group.

Third, investors must remain agile in response to regional divergences. While Ontario and BC face headwinds, Alberta and Atlantic Canada have shown resilience, with Alberta's population growing despite national trends according to MPaMag analysis. This regional bifurcation suggests opportunities in markets with diversified economies and stable population growth.

Finally, institutional investors are playing an expanded role in acquiring distressed assets and developer inventory at discounted rates, particularly in Toronto's struggling condo market according to PwC analysis. This trend highlights the importance of capitalizing on short-term dislocations to secure long-term value.

Outlook and Conclusion

As Canada's population contraction continues, real estate investors must balance caution with opportunism. While affordability challenges and high interest rates persist, analysts anticipate a gradual recovery in the second half of 2025 and into 2026, particularly as interest rates decline. However, structural imbalances in high-cost markets like Toronto and Vancouver will moderate this recovery according to RBC analysis.

For REITs and institutional investors, the key lies in aligning portfolios with demographic realities. This means prioritizing sectors with durable demand, adapting product mixes to evolving household needs, and capitalizing on regional divergences. In a cooling market, strategic positioning-not just capital-will determine success.