A Changing Market Creates Challenges for Small Condos
The condo market has been under pressure across the board, but the smallest units are taking some of the biggest hits.
Studios and condos under 500 square feet have seen prices fall faster and further than larger units, with Toronto and Vancouver both feeling the impact. And so far, there is little indication that the market for these tiny units has reached its bottom.
Toronto’s micro condos have consistently seen the strongest depreciation in recent years. Declines in 2025, when these units lost an average of $150 per square foot in value year-over-year, reached the highest point of the five-year period.
Until this year, which includes the first four months, the largest units (+1,200 psf.) have been increasing in value on a year-over-year basis.
Micro units with one or in many cases, zero bedrooms have much more limited appeal for end users. Add to that the fact that there are so many deals on the condo market right now, and buyers who are still active have the opportunity to purchase larger units than they may have been able to afford previously.
Still, there is a potential bright spot. Realtors and builders say small condos can sell, particularly when they are priced properly. The next few months will provide a good test of whether buyers are willing to step back into this part of the market.
For years, tiny condos were extremely attractive to developers. They were more profitable to build on a per-square-foot basis, making studios and smaller units an important part of many new projects. Investors were also a major part of the equation.
When rents were climbing, small studios appealed to investors looking for relatively affordable properties that could be rented out. Smaller units required less money upfront and smaller mortgages, while often generating higher rents per square foot. But that investment math has changed.
Studio rents have fallen considerably, making these units less attractive to investors than they were when rental prices were rising. According to the Rentals.ca/Urbanation rent report in August, studio rents were down an average of 9.6 per cent, the steepest year-over-year decline among condo apartment types. Studio rents are now sitting at about $1,594 per month across the country.
There are currently more than 1,000 condos under 500 square feet for sale in Toronto as of September, with asking prices starting as low as $250,000.
Sales have been limited. In the first four months of 2026, just 48 studio units sold in Toronto, with an average price of $413,135, or $953 per square foot.
That marks the first time this decade that the average price per square foot for these units has fallen below $1,000.
At the current pace, Toronto is on track to see fewer studio sales this year than in 2025. Last year, 299 studios sold for an average of $1,048 per square foot.
The shift toward smaller condos didn’t happen overnight. Over much of the past 15 years, the word “apartment” in Toronto increasingly became associated with condos in glass towers and those condos became smaller and smaller.
One reason was the growing influence of investors in the condo market. At the height of Toronto’s condo boom, investors owned at least 60 per cent of new condos.
As investor demand increased, the size of newly built condos declined. Statistics Canada data shows that the median living area of newly built condo units fell from 947 sq. ft. in the 1990s to 640 sq. ft. after 2016.
Developers relied heavily on investors to provide the preconstruction purchase commitments needed to secure financing for new projects.
Investors would typically put down a deposit on a unit before construction was complete, with the intention of renting it out or, in some cases, selling it for a profit once the building was finished.
Smaller condos made sense for many individual investors. They came with lower purchase prices, smaller down payments and mortgages, and often offered stronger rental returns on a per-square-foot basis.
The challenge now is that the market has changed. With condo prices under pressure and rents falling, the very factors that once made tiny units so attractive to investors are no longer working in their favour.
The next few months will be an important period for Toronto’s smallest condos as buyers, sellers and investors adjust to the changing market.