For years, anyone renting in Canada got used to a simple, brutal reality: rents go up, supply stays tight, and if you want a halfway decent apartment you'd better move fast. That era isn't coming back anytime soon.

A new report from BMO Economics lays out what's happening with unusual clarity. More than 180,000 rental units are currently under construction across Canada, and for the first time ever, rental projects now outnumber combined condo and homeownership units under construction. That's a historic shift. And it's colliding with a demand picture that has changed almost as dramatically on the other side.

The result? Average asking rents hit $2,008 in March 2026, down 5.3% year-over-year, making it the largest annual decline since the COVID-19 pandemic and the 18th consecutive month of year-over-year drops.

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How We Got Here

The supply story has two parts. The first is the wave of purpose-built rental projects that were approved and financed during the tight years of 2022 and 2023, when vacancy rates in most major cities sat near zero and governments were throwing incentives at developers to get shovels in the ground. Those projects take years to reach completion. They're completing now.

The second part is condo investors. A large share of the condos currently under construction across Canada are investor-owned units, which means many of them are heading to the rental market rather than into owner-occupancy. BMO notes this will add further rental supply throughout 2026.

On the demand side, the story is simpler and starker. Canada's federal government spent the better part of 2024 and 2025 pulling back hard on temporary resident numbers. International students. Temporary foreign workers. The people who, not long ago, were absorbing an enormous share of Canada's rental supply. Canada's population fell by roughly 102,000 in 2025, the first annual population decline Statistics Canada has ever recorded. Population growth peaked above 3% in mid-2024. It is now, effectively, zero.

BMO puts it plainly: "Canada's population fell 0.2% y/y as of Jan. 1, the first annual decline ever and down sharply from highs above 3% in mid-2024." The non-permanent resident pullback is doing the heavy lifting here. Between October 2024 and January 2026, the number of non-permanent residents in Canada dropped by nearly 473,000, from a peak of 3.15 million to about 2.68 million.

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Where It Hurts Most

Not all markets are feeling this equally. BMO is clear that B.C. and Southern Ontario are taking the hardest hit, where both rental and condo construction have been most intense and where the non-permanent resident pullback has been most concentrated.

B.C. is leading the country in rent declines, with average asking rents for all property types down 5.9% year-over-year across the province. Ontario is close behind at 5.2%. Vancouver apartment rents have now fallen for 29 consecutive months, and are down roughly 19% from their September 2023 peak.

The softness is sharpest in smaller units. Bachelor apartments, one-bedrooms, studios. These are the unit types that were built in the largest numbers during the construction boom, and they were also disproportionately occupied by the international students and temporary workers who are no longer here in the same numbers. The supply-demand math is particularly unfavourable for this segment.

RBC Economics estimates the national rental vacancy rate could surpass 3% in 2026, the first time in a decade that would happen for a two-bedroom apartment, and what the bank's economists describe as the threshold for a balanced market. That would be the third consecutive year of rising vacancy rates.

Here in Kelowna, the situation is even more pronounced. Kelowna's vacancy rate hit 6.9% in the city proper, the highest of any Canadian metro of comparable size, after sitting below 2% just a couple of years ago. Two-bedroom rents fell 11% in Kelowna year-over-year as of February 2026. New buildings are sitting partially vacant. Landlords who wouldn't negotiate in 2022 are offering two months free rent just to get tenants through the door. As we documented in an earlier deep-dive, Kelowna's rental market has genuinely flipped, and landlords are still adjusting to that reality.

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What This Means for Investors

The BMO report's most pointed observations are about the investor math, and it isn't encouraging for people holding rental properties bought at recent prices.

"For investors, cap rates don't provide enough cushion relative to risk-free yields to compensate for declining rent, tenant risk, and, in the condo space, a lack of price growth expectations," the report says. That's a polite way of saying the numbers don't work.

Cap rates measure a property's net operating income as a percentage of its value. When rents fall and property values stay high, cap rates compress. When Government of Canada bond yields are sitting above where they were a decade ago, investors can get a reasonable return without taking on tenant risk, vacancy risk, and maintenance costs. The spread between cap rates and risk-free yields is supposed to compensate for all of that. Right now, BMO says it isn't wide enough to justify the added exposure.

This is particularly acute in the condo investor segment. As we've noted in our analysis of the Kelowna condo market this year, the investor pullback from condos has been one of the defining forces depressing absorption rates over the past two years. The logic is straightforward: if one-bedroom units that were renting for $2,010 at peak are now renting for $1,700, the cashflow picture on a purchase made at peak prices looks materially worse. And without price appreciation to compensate, it gets harder to justify holding.

BMO also notes that improving affordability in some resale markets could draw renters back toward homeownership, which would add further pressure to rental demand. With the Bank of Canada's policy rate having come down significantly from 2023 peaks, some renters who were priced out of ownership now have a clearer path in. Every renter who buys is one fewer tenant in the pool.

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A Word About What This Isn't

There's a distinction worth drawing here that sometimes gets lost. Asking rents, which are the advertised prices for vacant units, are falling. But average rents paid by existing tenants are still rising, just more slowly. RBC Economics found that average rent for a two-bedroom apartment still grew 5.1% in 2025, even as asking rents fell, because landlords continue raising rents on tenants who are already in place.

This distinction matters. If you're a tenant coming up for renewal, you have more leverage than you did a year ago. You can point to what comparable units are listing for and use that as negotiating ground. But the rent relief renters are experiencing is concentrated among those moving into new units, not necessarily those staying put.

For investors, that creates a different problem: the units most likely to turn over are the ones where asking rents are falling fastest. New tenants are going to be paying less than old ones in many cases. And in buildings with meaningful vacancy, landlords are competing on incentives rather than just price.

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What Comes Next

BMO's base case is that rents remain under pressure through 2026, particularly in markets where construction has been heaviest. The supply wave doesn't stop immediately. Projects that were started during the tight years are still completing, and that pipeline takes time to clear.

The longer-term picture is more nuanced. Canada's population isn't going to stay negative forever. Immigration policy is already shifting back, with the federal government having built in recalibrations to permanent resident targets. RBC's economists expect population growth to reaccelerate by 2028 as policy normalizes, which would rebuild the demand base. Meanwhile, the sharp drop in new condo presales over the last two years means the construction pipeline is thinning for the years ahead.

The rental market will likely find a new equilibrium. It just hasn't found it yet.

For renters, this moment is real. The negotiating power is real. The falling asking prices are real. For landlords and investors navigating this environment, the BMO report is a useful reality check: the assumptions that underpinned rental investment decisions in 2022 and 2023 are no longer reliable, and the math needs revisiting.

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If you're trying to make sense of what this means for a property you own or are considering in the Okanagan, we're happy to talk through the specifics. Reach out to the team at Coldwell Banker Horizon Realty. The local picture has its own nuances that are worth understanding clearly before making any decisions.