High-end rentals in Canada have a vacancy rate of almost 17 per cent, according to a new report, far above the close to three per cent for more affordable rentals.

Real estate analytics firm CoStar, which defines high-end rentals based on its own rating system, says that out of 26,600 five-star units, 4,500 are vacant, a vacancy rate of 16.9 per cent.

The company says that four- and five-star buildings are set apart by high-quality finishes, good amenity offerings and an attractive and architecturally significant facade.

For four- and five-star units, 25,500 are vacant out of 222,190 total in Canada, making a vacancy rate of 11.5 per cent.

That compares with a vacancy rate of 4 per cent for three-star buildings and 2.7 per cent for one- and two-star buildings.

 

Two distinct narratives

 

Mario Lefebvre, CoStar’s chief economist for Canada, told Real Estate Magazine that the greatly differing vacancy rates show there are two distinct narratives happening between higher-end rentals and lower-end ones.

He places the blame for the higher vacancy among high-end rentals squarely on developers building too much of that stock due to higher construction costs.

Lefebvre said those costs rose dramatically over the pandemic and have kept rising since then, by as much as 60 to 70 per cent. However, incomes haven’t risen with them, which has made it very difficult for developers to build affordable housing and recoup the higher costs of building.

“Developers started doing the math themselves and said … ‘I’m going to go to the higher end,’ ” Lefebvre said. “The problem is, they built and they built, and now we wind up with double digits at the higher end in terms of vacancy.”

Developers figured they could recoup the higher costs by adding higher-end materials and amenities and charging more, according to CoStar.

However, market conditions when they started building earlier in the decade were much different than they are now. Projections then were very optimistic, but the market has since slowed due to factors such as lower immigration and strains on Canada’s economy, including U.S. tariffs and inflation.

CoStar’s report says absorption did not keep pace with the large number of new high-end deliveries, causing vacancy to jump from about seven per cent in 2022 to what it is today. That means when people talk about a shortage of available homes, they’re really talking about a shortage of affordable homes, as there are plenty of luxury homes available.

 

A slow return to equilibrium

 

Lefebvre said there will slowly be a return to equilibrium as rents decrease, making the higher-end stock slightly more affordable. The pace of construction has also slowed, which will allow demand to catch up with supply. Still, it will take a few years to work through the supply, he said.

The report predicts a steady increase in absorption beginning at the end of 2026 as rents decrease and supply tightens, with an added boost from landlord concessions, such as a few months of free rent. However, it expects vacancy in the high-end segment to remain above 10 per cent at the end of 2028.

 

Not expensive by design

 

Canada Mortgage and Housing Corporation puts the vacancy rate for more expensive rentals much lower than CoStar does. CMHC reported a rate of 5.2 per cent for the highest quartile of rents in Canada as of October 2025, where the national average rent is a little over $1,950 a month.

That is still nearly double the typical pre-pandemic vacancy rate for more expensive rentals, which sat at 2.8 per cent in October 2019.

CMHC Deputy Chief Economist Tania Bourassa-Ochoa told REM that vacancies have been notably higher for newer builds over the last few years. That’s because all of the recent construction has increased competition for tenants.

She said newer builds are typically more expensive, so much so that they may be unaffordable for many Canadians. But they’re not expensive by design, as in developers targeting the luxury market. Their costs have just gone up so much that they have to charge prices many can’t afford.

“The demand for rental housing has slowed down quite significantly,” Bourassa-Ochoa said. “That demand has not disappeared, it’s just waiting for better conditions and more affordable options.”