Best Bets

For the second year in a row, purpose-built rental housing is a top best bet, but with a new sense of strategic patience. The current market presents a rare opportunity for investors willing to accept lower yields today in exchange for significant future benefits.

This long-term conviction is underpinned by several powerful trends. A significant structural housing supply deficit exists across the country; in the GTA alone, the rental supply deficit is projected to reach 121,000 units over the next decade, according to Urbanation. While immigration policies have tightened, the resulting population growth continues to fuel the formation of new households and sustained demand for rental housing. At the same time, a large portion of Canada’s existing rental stock is aging and in need of upgrades, creating a clear opportunity for new, higher-quality products. Supportive public policy, from tax incentives to new CMHC financing programs, further reinforces the positive outlook for new rental development.

This long-term thesis is attracting a diverse mix of capital, from Canadian pensions and family offices to foreign investors and former condo developers. A recent high-profile example is the $4-billion privatization of a major multifamily REIT, which saw a foreign sovereign wealth fund and a domestic operator partner take the company private, signaling strong confidence in the long-term value of Canada’s rental housing sector. While transaction volumes across the broader commercial real estate market have moderated, the multifamily sector has held up better than most other asset classes, according to CBRE data, underscoring its resilient, defensive qualities in the current market.

But the investment thesis itself—accepting low near-term yields in anticipation of future growth—makes underwriting new acquisitions and developments difficult. Pro formas that rely on future rent growth and a more favourable interest rate environment can be a hard sell for investors and lenders seeking immediate returns. This is compounded by intense competition for assets, which is driving up prices and leading to cap rate compression, making it even harder to find deals that offer attractive returns today. 

The question then becomes: how are successful companies making these long-term plays work? A key strategy is focusing on operational excellence to drive net operating income (NOI) growth. This can involve using AI-powered tools and professional management platforms to better manage their portfolios, from rent-setting and tenant screening to energy savings and security.

Creative approaches to land and financing are also critical. Some companies are making development pro formas viable by building on underutilized sites they already own, such as the parking lots of existing retail assets. Others are using private bridge loans to get projects started quickly, bypassing potential delays in traditional financing before securing long-term CMHC debt once the asset is stabilized.

There’s a fundamental shift underway in how people live, work, and shop. This is creating an opportunity for a group of asset classes that form the physical backbone of that shift: industrial properties, self-storage, and data centres. While distinct, they share a common thesis: they are all benefiting from long-term trends such as population growth, e-commerce, and the explosion in data creation and consumption. Interviewees see continued opportunity in these sectors, though the nature of the opportunity is evolving.

The era of rapid industrial rental growth appears to be over. As one investment advisor noted, “Rent growth projections are flattening,” though underlying returns remain strong. The sector has seen a significant pullback in transaction volumes but still attracted more investment capital in the second quarter of the year than any other asset class, according to CBRE.

But this pullback in volume does not signal a lack of long-term conviction from sophisticated investors. On the contrary, confidence is evident in significant investments from a range of players. In late 2024, for example, a major U.S.-based logistics REIT made two multi-hundred-million-dollar acquisitions of distribution centres in the Greater Toronto Area. The self-storage sector is seeing active consolidation, with Canada’s largest storage provider acquiring significant assets in the first half of 2025. The data centre space—the subsector with the best investment prospects, according to survey respondents—is also attracting specialized infrastructure capital, as evidenced by a recent major transaction involving a portfolio from a national telecommunications company.

The nature of the opportunity in this space, however, is evolving. While some interviewees noted that a focus on small-bay industrial assets in specific markets can de-risk a portfolio, others pointed to the uncertainty created by U.S. tariff policies as a headwind for manufacturers and logistics firms. Most forward-thinking investors are already identifying new sources of demand. One such opportunity is the potential for increased defence spending to drive a new wave of demand for specialized manufacturing and warehousing space. 

The seniors’ housing sector is re-emerging as a top-tier institutional asset class. The primary impetus remains the demographic wave of an aging Canadian population, which is creating a massive, noncyclical demand base. Beyond demographics, the sector's improving financials are also a key factor; recent capital investment in facilities has allowed operators to increase rental rates and improve operating margins. Survey respondents named seniors’ housing as one of the subsectors with the best investment prospects in 2026.

But despite the strong demand story, interviewees consistently pointed to significant challenges. The primary hurdle is the sheer operational complexity of the business. One developer noted that it’s a highly specialized field requiring a deep level of expertise to succeed. Success involves more than just managing a property; it means navigating complex regulatory requirements and a variety of fee structures beyond just rent. The high operating costs are another major concern. Others are cautious due to the prominent level of public scrutiny the sector faces, with some investors preferring to act as a lender rather than an equity owner.

Two distinct paths for value creation are emerging in this complex sector. The first is a strategy of scale and modernization, being pursued by large, sophisticated players with deep capital. They are acquiring existing assets and applying professional management and operational platforms. A prime example is a recent major transaction involving a specialized U.S. REIT, which worked with a domestic operator to manage its newly acquired Canadian seniors’ housing portfolio.

The second path is focused on innovation and reinvention. To meet the needs of a new generation of seniors, interviewees pointed to emerging models such as mixed-use retirement communities and dedicated “clubs” for active adults within larger developments. These and other innovative concepts, such as adapting existing homes to include caregiver suites, present a significant opportunity for governments to act as a catalyst, as the success of these models will likely depend on supportive changes to zoning and tax policy.