Ontario Secondary Markets: Why the Long-Term Thesis Survives a Softening Rental Market
Vacancy rates are rising across Ontario. New supply is hitting the market. For patient multifamily investors, this is not a reason to panic — it is a reason to understand the cycle.
Canada's rental market looks very different in 2026 than it did two years ago. CMHC's 2025 Rental Market Report shows vacancy rates rising in almost every major Ontario city, driven by a combination of record new supply, declining international student enrolment, and slower population growth.
London, Ontario — a market that attracted significant investor attention during the tight conditions of 2022 and 2023 — now sits at a 4% vacancy rate, its highest in 15 years. Hamilton is at 3.6%. The national purpose-built vacancy rate has climbed to 3.1%, above its 10-year average. CBRE forecasts that the national vacancy rate could reach 4.5% by the end of 2026 if population growth remains subdued.
For investors who bought into secondary Ontario markets expecting the tight conditions of the past few years to persist indefinitely, this is an uncomfortable data point. But for investors with a longer time horizon, the picture is more nuanced.
What Drove the Tightening — and the Loosening
The exceptional tightness of 2021 to 2023 was driven by a specific set of conditions: a surge in non-permanent residents, record international student enrolment, and a period of constrained new supply caused by pandemic-era construction delays.
The loosening of 2024 and 2025 reflects the reversal of those same factors. Federal caps on international study permits sharply reduced student demand in university cities like London. CMHC-supported construction programs delivered a surge of new purpose-built units to market. Population growth slowed as immigration policy tightened.
These are cyclical factors, not structural ones. The underlying drivers of long-term rental demand in Ontario secondary markets — population growth, housing affordability relative to the GTA, and employment diversification — remain intact.
London's Economic Foundation
London is not a one-dimensional market. In 2024, CBRE recognized London as one of North America's top five emerging tech markets — a reflection of the city's growing diversification across healthcare, education, technology, and manufacturing. Fanshawe College alone enrols approximately 43,000 students, anchoring a substantial and recurring demand base.
As recently as February 2026, Pier 4 REIT made its largest-ever acquisition: a 558-unit, 9-building complex in London for $102.5 million, citing under-market rents and long-term value-add potential. Institutional conviction in the market has not disappeared — it has simply become more selective.
The Supply Argument Works Both Ways
The new supply entering Ontario rental markets today was underwritten during the tight conditions of 2021 and 2022, when developers could justify the economics of new construction. As vacancy rates rise and financing conditions remain challenging, new project approvals are slowing.
This means the supply surge of 2024 and 2025 is likely a one-time catch-up, not a sustained trend. CMHC itself projects that supply growth will moderate as the pipeline of projects approved during the boom period is exhausted.
What This Means for Cap Rates and Pricing
The investment market has repriced. GTA multifamily cap rates, which sat around 3% before 2023, have moved to the 4.5 to 4.75% range according to CBRE and Colliers transaction data. Secondary Ontario markets trade at a spread above this — meaning better initial yields for buyers willing to accept the additional market-specific risk.
Colliers reports that despite rent declines across major markets, multifamily continues to record the lowest cap rates of any major asset class — often 1 to 2 percentage points below industrial and retail. The asset class remains institutionally favoured even as fundamentals soften.
The Long View
Ontario's housing affordability gap between major centres and secondary markets is structural. The cost of owning or renting in the GTA continues to push households toward cities like London, Chatham-Kent, and St. Thomas. Infrastructure investment, employment diversification, and demographic trends all point toward continued long-term demand.
The current softening is real. Investors who ignore it are making a mistake. But investors who use it to abandon a fundamentally sound long-term thesis are also making a mistake — just a different one.