The supply of Toronto condo units for rent will exceed demand, according to a new report from CIBC World Markets Inc.

The report, produced by deputy chief economist Benjamin Tal, states that between 45 and 50 per cent of all new Toronto condo units are being used for rental purposes.

Tal says that with about 20,000 condo units projected to be completed in the year, if half are reserved for rental purposes — along with a projected 1,500 purpose-built rental units in development — about 11,500 units in total will be available.

But when analyzed against population trends and demographics, these figures suggest an excess supply of approximately 1,000 units per year. Tal expects this excess to increase vacancy rates by somewhere between 0.3 and 0.4 per cent in Toronto over the next several years.

The report suggests that this rise in vacancy rates will not have any major impacts on the rental market. Over the last decade, “the falling average size of households has raised the demand for rental units by close to 10 per cent,” it says.

However, the impact of higher rental inventory is expected to affect investors when mortgage rates eventually rise.

“The fear is that increased supply of rental units will flood the market and will lead to a wave of sales by disappointed investors with no bargaining power,” Tal writes.