Ottawa remains 'beacon' for office investors, industry execs say in wake of major sales

77 Metcalfe St.
Montreal's Groupe Mach has purchased a 12-storey office building at 77 Metcalfe St. from BentallGreenOak for $19.1 million.

Two downtown office towers totalling more than 300,000 square feet have sold for a combined $60 million – a signal that the capital remains a “beacon” for institutional investors looking for a safe haven in turbulent economic times, two local real estate executives said Monday.

Toronto-based True North Commercial REIT said last week it’s agreed to purchase an 11-storey office building at 400 Cumberland St. from fellow Toronto firm KingSett Capital for $40.5 million. On Monday, OBJ learned that BentallGreenOak has sold a 12-storey building at 77 Metcalfe St. to Montreal’s Groupe Mach for $19.1 million. 

The 400 Cumberland St. deal, which is expected to close in mid-August, adds a 174,000-square-foot property that’s almost fully leased to the Department of National Defence to True North’s growing portfolio of properties in the National Capital Region. 

The publicly traded real estate investment trust already owns nearly five million square feet of commercial property in Canada. Its six current holdings in Ottawa include a pair of office towers at 340 and 360 Laurier Ave. W.

“This transaction signifies the REIT’s commitment to strengthen its position in Ottawa with the highest-quality tenant in Canada and will further capitalize operational efficiencies with our existing assets in downtown Ottawa,” True North CEO Daniel Drimmer said in a statement. 

Long-term lease

Built in the early 1970s, the tower at 400 Cumberland St. is about 98 per cent leased to DND, which this spring extended its lease at the property for another six years. The class-B building at the corner of Rideau Street is also home to a 1,500-square-foot Happy Goat Coffee outlet.

Veteran Ottawa real estate broker Brent Arseneau said the LEED Gold-certified midrise structure offers “very stable income” for its new owners. He said KingSett’s goal was to “maximize the value of the property” by inking DND to a new lease extension, and it decided to sell the property once that objective was achieved.

True North is buying the building “for the value of the lease, really,” said the director of office leasing at Ottawa-based Colonnade BridgePort, which previously managed the property. “That is a steady return for them.”

Meanwhile, 77 Metcalfe St. – a 12-storey, 147,000-square-foot building at the corner of Albert Street – changed hands in a transaction that closed last week.

The sale comes as the sole tenant, Nav Canada, is poised to vacate the property at the end of October. 

According to the building’s website, BentallGreenOak has been working with architecture firm Perkins+Will to revamp the class-A office tower – which was originally constructed in 1954 and underwent a major renovation and expansion in 1994 – to include “creative co-sharing spaces, elegant collective amenities and comfortable private rooms.”

The renovations are expected to be completed by the end of 2023, the website says.

CBRE senior vice-president of capital markets Nico Zentil, whose firm helped broker the deal, said the property could attract a variety of tenants, including a federal government department or a private-sector occupant such as a tech firm looking to plant its flag downtown.

"It’s rare that you do see a vacant office building in a location like this in the Parliamentary Precinct."

“It’s rare that you do see a vacant office building in a location like this in the Parliamentary Precinct,” Zentil said. “I think that has significant appeal. Certainly, there’s a lot of potential value there for (Groupe Mach) to create.”

Groupe Mach did not immediately return requests for comment on Monday. BentallGreenOak said it had no comment on its decision to sell the property.

According to Groupe Mach’s website, the Montreal-based company already owns and operates 14 buildings in the National Capital Region covering more than 1.4 million square feet. Its portfolio includes downtown properties at 110 O’Connor St., 171 Slater St. and 400 Cooper St. as well as several buildings on Palladium Drive in Kanata.

Zentil said the downtown office transaction market continues to be relatively frothy despite soaring inflation that’s prompted the Bank of Canada to jack up interest rates several times in recent months.

He noted the firm is currently in the process of brokering the sale of Telus’s 110,000-square-foot Ottawa headquarters at the corner of Bank and Slater streets, a deal that’s expected to be finalized in the next 60 days. Several other downtown properties should be hitting the market in the next month, Zentil added.

While certain deals have been “repriced” as interest rates rise and the threat of a recession looms, Zentil said Ottawa remains a highly sought-after market for investors due to its stable economy and solid government tenant base.

The capital’s overall office vacancy rate ticked up slightly in the second quarter to 9.7 per cent, according to Colliers, but it still remains the second-lowest in the country behind Vancouver.

Meanwhile, asking net rents in Ottawa fell 1.5 per cent between April and June to $16.64 per square foot, Colliers added in its recent quarterly office market report, due largely to a rise in vacancies in class-B and C properties.

But Zentil remains bullish on the city's long-term prospects.

“(Ottawa) is sort of like the beacon in a way,” he said. “We’re still in really good shape as an industry.”

Arseneau agreed, arguing creative investors will find ways to land “young, vibrant” tenants such as rising tech firms to their office properties.

“People have got to put their money somewhere,” he said. “I think there will be some people that will be willing to take risks and purchase … buildings and do some fun things for sure.”

While some potential buyers have been “spooked” by rising interest rates, surging inflation and other factors, Arseneau said the city’s commercial real estate outlook for the rest of 2022 hinges on a number of factors – including how quickly the Bank of Canada’s war on inflation begins to have an impact.

“In six weeks, it can change again if things (get) back under control a little bit,” he said.