The total dollar value of commercial real estate transactions in Ottawa plummeted 53 per cent in 2023 compared with the previous year as rising interest rates took their toll on the market, research from Colliers Canada shows. The national real estate firm reports there were $1.75 billion worth of transactions in the nation’s capital last […]
The total dollar value of commercial real estate transactions in Ottawa plummeted 53 per cent in 2023 compared with the previous year as rising interest rates took their toll on the market, research from Colliers Canada shows.
The national real estate firm reports there were $1.75 billion worth of transactions in the nation’s capital last year, down from $3.75 billion in 2022.
The total number of sales in Ottawa also declined last year, falling to 322 from 465 in 2022 – a drop of 31 per cent.
Commercial sales activity diminished in all asset classes in 2023 as investors navigated rocky economic terrain, Colliers’ Ottawa-based vice-president of national investment services, Michael Pyman, told OBJ on Monday.
“Obviously, with the way the economy’s been going and (with) interest rates kind of paused, the uncertainty in the market clearly has made its way into transaction volumes,” Pyman said. “You’re seeing everything drop off – even the more sought-after asset classes that investors are still saying they’re interested in. Uncertainty kind of kills all deals.”
Last year’s decline reversed a two-year rise in activity that saw total investment volumes jump from $1.9 billion in 2020 to $3.3 billion the following year. Ottawa’s five-year average for total dollar volumes is $2.7 billion.
The top 10 deals last year were worth a combined $931 million, down from $1.46 billion in 2022. The most valuable transaction of 2023 was Groupe Mach’s $277-million acquisition of One60 Elgin from Toronto-based H&R REIT.
“Groupe Mach has certainly been able to make sense of the markets where a lot of people haven’t and is willing to invest in down markets to see the potential upside in the future, especially for marquee assets like 160 (Elgin),” Pyman explained.
Notable deals crossed categories
While the 10 biggest transactions of last year were spread fairly evenly among office, multi-residential, industrial and retail properties, some of the most notable deals crossed categories.
For example, Katasa Group and ARG Devco’s move to acquire a pair of class-B office towers at 66 and 130 Slater St. from KingSett Capital was “more of a multi-family purchase” because the buyers intend to convert the 13-storey highrise at 130 Slater into a residential complex, noted Colliers research analyst Paul Mullin.
In another deal that generated plenty of media buzz, the National Capital Commission paid $21.8 million to buy the home of the former Chapters bookstore on Rideau Street from a Quebec company.
But with the NCC recently confirming it is in advanced talks to lease the 60,000-square-foot space to an organization that wants to turn it into an events space, the sale was not really a “true retail play,” Pyman said.
“I think (the sale price) probably would have been quite a bit less had it traded for an investor that was looking to repurpose that property for retail,” he added.
Two of the top five deals last year were in the multi-residential class – Kingston-based Homestead Land Holdings’ $96-million purchase of a 16-storey apartment highrise near the University of Ottawa and Ironclad Developments’ sale of a six-storey, 143-unit rental building at 800 Eagleson Rd. to CAPREIT Apartments for $61 million.
In addition, two other residential transactions cracked the top 10. That came as no surprise to Pyman, who said he expects unrelenting demand for rental housing to fuel the local commercial real estate investment market’s recovery in 2024.
“If interest rates don’t go down significantly, at least you’ll have a more stable market,” he said. “I think maybe we’ll see some new (multi-residential) product that was built last year and leased up that will be trading.”
Outlook for industrial sector remains strong
Only one of the top 10 deals involved an industrial property, but Pyman said the long-term outlook for Ottawa’s industrial sector – especially for buildings with smaller bays and lower ceilings – remains strong.
“Investors like that stuff,” he said. “It’s still really the core of Ottawa’s industrial market, that two- to 10,000-square-foot tenancies. That’s really what drives our market.”
As has traditionally been the case, the Ottawa market continues to be dominated by private investors, who accounted for more than two-thirds of all the money spent on commercial real estate in the city last year.
Institutional investors, meanwhile, accounted for just over two per cent of all spending in 2023, down from about four per cent in 2022.
Pyman said he thinks institutional investors that sat on the sidelines as interest rates spiked will become more active in the Ottawa region as 2024 rolls on, “but private capital is still what drives the bus.”
The veteran real estate executive said there is still a “divergence” between what sellers are asking for commercial properties and what buyers are willing to pay. But Pyman said he’s hopeful that gulf will start to be bridged as the year goes on.
“I think that probably will change as we make our way into this year, I think on both sides of the equation,” he said. “I think the uncertainty has sort of played its way through the market and now it’s almost gone.
“I think we’re going to see some development activity, and I think we’re going to see some (more) investment activity across all asset classes. I think (the office sector) is going to continue to be a challenge, but certainly we’re going to see a lot more demand on the multi-family, industrial and selective retail front. I think we’re going to get closer to that five-year average.”
OTTAWA’S TOP 10 COMMERCIAL REAL ESTATE TRANSACTIONS OF 2023
1. One 60 Elgin, 160 Elgin St. – $277 million – downtown class-A office space, sold by H&R REIT to Groupe Mach
2. 50 Laurier Avenue East – $96 million – highrise apartment, sold by 50 Laurier Holdings Inc. to Homestead Land Holdings Ltd.
3. Ottawa Marriott Hotel, 100 Kent St. – $86.5 million – downtown highrise hotel, sold by InnVest Hotels to Manga Hotels
4. 66 Slater St. and 130 Slater St. – $72 million – downtown class-B office buildings, sold by KingSett Capital to Katasa Group and ARG Devco
5. 800 Eagleson Rd. – $61 million – lowrise apartment, sold by Ironclad Developments to CAPREIT Apartments Inc.
6. 2660-2710 Lancaster Rd., 2750-2772 Lancaster Rd., 1117-1141 Newmarket St. – $39.75 million – industrial portfolio, sold by Pensionfund Realty Ltd. to Crown Realty Partners.
7. 21 James St. and 420 Gilmour St. – $37.5 million – lowrise apartment, sold by Minto Multi-Residential Income Partners I GO Inc. to Centre Prime Inc.
8. 4570 Hawthorne Rd. – $36.25 million – residential land, sold by Findlay Creek Development Inc. to Claridge Homes
9. 418 Hazeldean Rd. – $22.953 million – neighbourhood shopping centre, sold by Van Lee G.P. Ltd. to 1000547351 Ontario Ltd.
10. 47-57 Rideau St. – $21.8 million – street-front retail building, sold by 9053-7341 Quebec Inc. to the National Capital Commission
