Is the Downtown Toronto Rental Market Really Soft? A Deep Dive Into 2025’s Surprising Trends

For more than two decades, the downtown Toronto condo market has been anything but boring. We’ve lived through booms, corrections, policy shocks, and global disruptions — but the last few years have delivered a particularly fascinating shift. After a twenty‑year bull run, the resale market began to decline in 2022, and with that came a new kind of seller psychology.

ou’ve probably heard this line before:

“If I can’t sell the condo, I’ll just keep it and lease it out.”

It sounds simple. It sounds rational. But the motivations behind that statement — and the consequences — are far more complex.

Let’s break down what’s actually happening in the downtown rental market, why so many would‑be sellers are becoming landlords, and what the data from 2025 tells us about supply, demand, and absorption.

Why Sellers Become Accidental Landlords

There are two common scenarios behind the “I’ll just rent it out” mindset:

1. The Long‑Time Investor

They want to exit the market, but the price they “need” or “want” isn’t materializing. So they hold, hoping for a rebound.

2. The End‑User Who Has Already Moved

They’ve bought a home, moved out, and now want to sell the condo — but the market isn’t cooperating. They can afford to carry both properties, so they pivot to leasing.

Both scenarios have become increasingly common since 2022. Some owners manage the transition smoothly. Others… not so much.

A Real‑World Example: When “We Don’t Need to Sell” Turns Into a Management Headache

In late 2022, a couple who had relocated to British Columbia asked me to list their downtown Toronto condo. I provided a fair market valuation based on the shifting conditions. They wanted the price their neighbour got in March — a peak‑market number.

Showings were minimal. Offers never came. They refused to adjust the price until months later, and even then, only to the value I had given them the previous summer. By spring 2023, they decided to lease instead.

We secured tenants. A year later, those tenants moved out. I helped them find new ones. Then, in 2025, I noticed the unit back on MLS — this time under a property management company.

My guess?
Managing a 1,400 sq. ft. luxury condo from across the country — and managing the personalities that come with that tenant profile — became overwhelming. Many property managers charge around 20% of gross rent. That’s not insignificant.

Meanwhile, the condo’s value continued to decline from its 2022 peak.

Were their decisions “right” or “wrong”? Hard to say. They could afford to hold, and they chose to chase a price that no longer existed. But their story illustrates a broader trend:

Units that were meant for resale are quietly being absorbed into the rental market.

So… Is the Rental Market Flooded? The Data Says No

Throughout 2025, there was constant chatter about a “flooded” rental market. But when we examine the numbers, the narrative doesn’t hold up.

New Listings: A Reversal of Trend

In the first half of 2025, new condo rental listings were up year‑over‑year. Then, suddenly, everything changed.

From August to December, listings declined for five straight months, with three of those months showing double‑digit drops.

This is not what a flooded market looks like.

Leased Units: A Dip That Makes Sense

Leased units also declined in Q4 — but that’s expected when fewer listings hit the market. You can’t lease what isn’t available.

November’s sharp drop looks like an outlier, not a trend.

The July Spike: The International Student Myth

Despite endless headlines about fewer international students, July 2025 saw a clear spike in leased units — the opposite of what you’d expect.

If student demand had collapsed, July would have cratered. It didn’t.

 

The Most Telling Metric: Absorption Rate (SNLR)

This is where the truth becomes undeniable.

Absorption rates in Q4 2025 were:

• Higher than 2024
• Higher than 2023
• Higher than 2022
• In some months, approaching 2021 levels, which were exceptionally strong

A “soft” market does not produce rising absorption rates.

The downtown rental market is efficient, stable, and in some months, tight.

 

What This Means for Landlords and Investors

1. Lease listings are down

Supply is tightening.

2. Absorption rates are up

Demand remains strong.

3. The market is not soft

It’s balanced — and in some pockets, competitive.

4. Accidental landlords aren’t overwhelming the system

Their units are being absorbed without stress.

5. Property management is becoming more common

Especially for remote owners or those with high‑maintenance units.

 

Final Thoughts

The downtown Toronto rental market is not weak. It’s not flooded. It’s not collapsing.

It’s resilient, stable, and absorbing inventory at a healthy pace, even as the resale market continues to struggle.

Q1 2026 will give us our next set of clues — and if the current trajectory holds, we may see even stronger absorption as the year unfolds.