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Sale of Queen Street building tops Canadian office transactions in Q1: Morguard

May 29, 2024

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The federal government’s $125-million acquisition of a building at 181 Queen St. accounted for nearly half the value of all Canadian office transactions in the first quarter as investors shied away from big buys amid ongoing economic turbulence, a new report from Morguard says. Office property sales in Canada’s largest markets totalled $282.8 million in the first three months of 2024, the Toronto-based real estate firm said in its latest quarterly update and economic outlook released this week. That’s the lowest quarterly level of investment in Canada’s office market in seven years. Morguard cited the “combination of the rising cost of debt, increased economic uncertainty, and the subsequent widening of the gap between vendor and purchaser acquisition pricing expectations” for the slowdown. “Investors increasingly looked for pricing adjustments to offset increased real estate risk and higher financing costs,” the company said in its report. “Often, vendors were unwilling to meet the pricing objectives of buyers when disposing of assets, despite increased downward valuation pressure.” Public Services and Procurement Canada made the biggest buy of the quarter, purchasing the Queen Street building that houses CBC headquarters from Morguard for $125.3 million, or $463 per square foot. That nearly matched the total value of all other office transactions in the five major Canadian markets – Greater Vancouver, Calgary, Toronto, Ottawa and Montreal – that Morguard surveyed. The office market’s struggles mirrored those of other major asset classes in the first three months of 2024. In all, just under $2.6 billion worth of commercial real estate investments were recorded in the five markets, according to Morguard, which looked at transactions valued at $10 million or more. That represented a 55 per cent drop from the previous quarter and a four-year quarterly low.

Multi-suite properties popular

Industrial buildings generated the highest sales volume, with transactions totalling $1.2 billion. But that was still down 55 per cent from the previous quarter as institutional investors and private pension funds remained “relatively inactive” in the industrial class amid high borrowing costs, Morguard said. “While a range of groups have acquired assets recently, owners/users have accounted for a significant share of investment transaction volume up to and including the first quarter of 2024,” the company noted. Multi-suite residential rental properties were the second-most popular target for investors, with $568 million worth of assets changing hands in the first quarter. Multi-suite residential sales were down 50.2 per cent quarter-over-quarter, Morguard said. There were 21 such transactions in the quarter, the firm said, noting the average deal size dropped to a three-year low as sales of large portfolios have “slowed significantly” due to a shortage of inventory. “Smaller-scale properties selling to private groups have accounted for the largest share of sales activity over the past few years,” Morguard explained. Meanwhile, sales of retail assets fell 55.3 per cent quarter-over-quarter, the report said. Ottawa had no transactions of at least $10 million in the industrial, retail or multi-suite residential asset classes in the first quarter, according to Morguard. The sluggish start to 2024 continues a trend that saw the total value of commercial real estate transactions in Ottawa plummet 53 per cent in 2023 compared with the previous year. Colliers reported 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 31 per cent to 322 from 465 in 2022. 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.