The rise of institutional investors, such as Real Estate Investment Trusts (REITs), private equity firms, and pension funds, is reshaping the real estate market, particularly in major Canadian cities like Toronto and Vancouver. Their increasing influence is not only transforming property values but also posing significant challenges to real estate agents, especially smaller ones who cater to traditional buyers and sellers.

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Institutional Investors Bypassing Traditional Agents

One of the most significant impacts of institutional investors on the real estate industry is their ability to bypass traditional real estate agents altogether. Large institutions like Blackstone or Starlight Investments typically have in-house brokerage teams or exclusive partnerships with specialized commercial brokers. These in-house teams handle everything from acquisitions to property management, drastically reducing the need for external agents. For example, Starlight Investments controls over 60,000 rental units across Canada​(1), while CAPREIT owns more than 52,000​(4).

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In 2021, institutional buyers accounted for around 13% of residential sales​(), and they tend to prefer direct transactions, where the use of real estate agents is minimized. These firms rely on cash offers, quick closings, and bulk deals, which are often more appealing to sellers compared to individual buyers, making it harder for smaller agents to compete in this space.

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As we discussed in Are Financialized Landlords Driving Rent Increases Across Canada?, large firms like Starlight often bypass individual transactions and employ aggressive acquisition strategies, using Above Guideline Increases (AGIs) and vacancy decontrol to maximize profits, often displacing tenants and further marginalizing traditional buyers​().

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Erosion of Small Agents' Business

Smaller agents are particularly vulnerable to the increasing dominance of institutional investors. Traditionally, agents have served individual buyers, first-time homeowners, and small investors. However, institutional buyers are now purchasing entire portfolios of properties, often outbidding individual buyers and locking up housing stock that would otherwise have been available for personal ownership​(5).

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The rental market is also being affected, with institutions converting more homes into rental units. This transformation, often referred to as the "financialization" of the housing market, has reduced the pool of homes available for traditional homebuyers. In areas like Toronto and Vancouver, as much as 32% of homes are now used as investment properties​(5), limiting opportunities for smaller agents who are unable to compete with institutions that offer cash deals and waive contingencies​(3). This trend was explored in our article Rent vs. Return: The Financialization Squeeze on Canada’s Rental Market, where we highlighted how financialized landlords, by converting affordable units into higher-end properties, are diminishing affordable housing options and squeezing out smaller market participants​(1).

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Lower Commissions and Negotiation Power

Institutional investors tend to negotiate lower commission rates, given the high volume and scale of their transactions. Many smaller agents who rely on traditional commission structures are struggling to adapt. For instance, in 2021, the median price of homes purchased by institutional investors was about 26% lower than state median prices in the U.S., due to their ability to buy properties in bulk and as-is​(3). This trend has also been observed in Canada, where institutional buyers focus on acquiring properties below market value, minimizing the profits agents can earn.

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Opportunities for Adaptation

While the landscape may seem bleak for traditional agents, there are still opportunities. Many institutional investors, once they acquire properties, need help with property management, leasing, and tenant relations. Agents who can pivot toward offering these services—such as managing rental portfolios or overseeing tenant acquisition—can find new revenue streams in the evolving market. Furthermore, there remains a niche for agents specializing in the sale of luxury homes or high-demand neighborhoods where institutional investors may not have as strong a presence.

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Institutional Investors and Market Disruption

The dominance of institutional investors has broader market implications. In cities like Toronto and Vancouver, institutional ownership is contributing to the housing affordability crisis. Rent increases have surged in these markets, with rents climbing 20-30% in recent years due to aggressive acquisition strategies​(5). As these firms acquire more properties, fewer homes are available for personal ownership, particularly for first-time buyers, exacerbating the housing affordability issue. This market disruption is hitting both tenants and smaller real estate agents hard, as both struggle to compete with these well-capitalized entities.

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Conclusion

Institutional investors are significantly altering the landscape for real estate agents in Canada. Their in-house brokerage teams, bulk buying strategies, and ability to bypass traditional agents are making it increasingly difficult for smaller, independent agents to survive. While there are still niches to explore, such as property management and tenant relations, the future for small real estate agencies is under threat. As institutional buyers continue to grow their share of the market, small agents must adapt or risk being sidelined in an increasingly competitive real estate environment.

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This growing trend has long-term implications not just for real estate professionals, but for housing affordability and availability across Canada. The role of financialized landlords and the aggressive strategies they use to maximize returns, such as AGIs and vacancy decontrol, are explored in our articles on the topic​(1)​(4). For smaller agents to survive, they must evolve their business models to navigate this complex and changing market.

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