Morguard has added another marquee property to its growing commercial portfolio in Ottawa, acquiring a stake in a class-A office tower on Slater Street that is best known as the local headquarters of telecommunications giant Telus.
The Mississauga-based real estate firm said Monday it finalized a deal late last month to purchase a 50 per cent share in 215 Slater St. from TD Asset Management for $28.1 million.
Morguard will also take over property management duties at the nine-storey, 109,000-square foot building at the corner of Bank Street, which was previously managed by Montreal-based Canderel.
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The transaction comes on the heels of Morguard’s $64.5-million acquisition last summer of another blue-chip property, software-maker Kinaxis’s new 163,000-square-foot head office on Palladium Drive in Kanata.
Morguard now owns or manages more than five million square feet of office, retail and industrial space in the National Capital Region. Its other notable properties include Performance Court at 150 Elgin St. and the St. Laurent Shopping Centre.
The firm’s Ottawa-based assistant vice-president of property management and office and industrial leasing, Michael Swan, cited 215 Slater’s prominent downtown location and stable, long-term tenant base as major selling points.
Calling the building a “trophy-calibre asset,” Swan noted that Morguard served as the original property manager at 215 Slater, giving the firm a level of familiarity with the site that helped cement the deal.
“Our building operators know every inch of the building,” he told OBJ on Monday afternoon. “It was something we were comfortable with.”
Telus, which has been the main tenant since the distinctive LEED-gold-certified building opened in 2007, occupies about 80 per cent of the space on a lease which has nearly seven years remaining, with multiple five-year renewal options.
Shipping company DHL and smoothie bar Juice Monkey rent commercial space on the ground floor. The top floor as well as about 2,600 square feet of ground-floor space previously occupied by Second Cup and another retailer are currently vacant.
The transaction comes at a tumultuous time for the commercial real estate industry as it grapples with rising office vacancy rates amid a widespread shift to remote work during the pandemic.
According to CBRE, Ottawa’s downtown vacancy rate jumped to 11.5 per cent in the third quarter of 2022, up from 10 per cent at the end of June and its highest level since before the COVID-19 crisis.
But Swan said class-A buildings remain coveted assets, noting Ottawa’s downtown vacancy rate for office space in that category was still well below 10 per cent at the end of September. He said he expects modern, energy-efficient properties like the Telus HQ will continue to be a magnet for top-flight tenants.
In addition, with few new office construction projects on the horizon, buildings like Palladium Drive and 215 Slater should retain their status as flagship properties well into the future, Swan added.
“We don’t feel there are going to be a lot of new office buildings going up, so we feel that these are good-quality investments that will be trophy assets for a long time,” he explained.
While Ottawa’s commercial real estate market has seen record transaction levels in recent years as investors sought comfort and stability in the capital’s government-based economy, some industry observers suggest rising interest rates and persistent high inflation could dampen the sector’s outlook for 2023.
But Swan said Morguard won’t hesitate to explore more opportunities in the region.
“We believe in the Ottawa market,” he said. “Interest rates and inflation have certainly had an effect on real estate, but we believe the long-term fundamentals are there.”