Another marquee downtown office tower is up for sale as some real estate brokers say Ottawa is losing its lustre for institutional investors amid ongoing uncertainty over the future of work in the city’s core.
Manulife Investment Management put its 18-storey highrise at 150 Slater St. on the market this week. The 477,448-square-foot, class-A property has been the headquarters of Export Development Canada, a federal Crown corporation, since it opened 13 years ago.
EDC, which occupies 98 per cent of the building, has a long-term lease that expires in 2031. The remainder of the tower is leased to ground-floor retailers, according to CBRE, which is marketing the building on behalf of Manulife.
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Manulife acquired the LEED gold-certified tower from its original owners, Broccolini Construction and Canderel, in 2011.
A CBRE marketing brochure says the building is “ideally positioned for both public as well as private sector tenancy given its strategic position within the (central business district) and proximity to Parliament Hill and all major attractions and transit stations.”
The real estate brokerage is touting 150 Slater as a “trophy-calibre” asset with “highly stable cash flows,” adding that while EDC is currently paying below-market rental rates, its lease deal offers “attractive upside” with two options to renew for five-year terms at market rents.
“The formidable strength of the EDC tenancy provides much sought-after income security throughout the duration of the lease term, with attractive rental upside on rollover,” reads the brochure.
Citing a shortage of development land and a “lack of quality investment-grade” assets in Ottawa’s core, CBRE said the sale represents “a rare opportunity to acquire a trophy downtown office building in the central business district on a 100 per cent interest basis.”
Manulife Investment Management and CBRE did not immediately respond to requests for comment on Thursday.
It’s the second time in the last 12 months that Manulife has put one of its major Ottawa office holdings on the block. Earlier this year, the company sold the 183,000-square-foot Churchill Office Park on Carling Avenue, best-known for being the home of Corel during the graphics software pioneer’s heyday in the 1990s, to local real estate firm Regional Group.
The Slater Street office tower joins a series of other high-profile buildings, including Place de Ville, One60 Elgin, the Carling Executive Centre and the Park of Commerce complex, that have been put up for sale in recent years.
Concerning trend
It’s a trend that worries some prominent local commercial real estate brokers.
Institutional investors that have traditionally owned many of the capital’s most sought-after office assets “are not looking at Ottawa anymore as a market to get into,” says Alan Doak, a partner at Proveras Commercial Realty who has been representing office tenants in the city for more than 15 years.
Doak says that while “newer and more entrepreneurial owners” – such as Montreal-based Groupe Mach, which bought One60 Elgin, and Toronto’s Crown Realty Partners, which now owns the Park of Commerce and 50 per cent of Place de Ville – still appear keen on investing in Ottawa office space, other, more traditional buyers are exiting the nation’s capital for what they see as greener pastures.
Doak points to a lingering perception that the federal government, which owns or leases about half of downtown Ottawa’s office space, as well as non-profit organizations that also constitute a hefty chunk of tenancies, are not as eager to return to the office in a post-pandemic world as private-sector companies that make up a much bigger portion of office renters in other cities.
According to research firm Environics Analytics, the capital’s office occupancy rate was 54 per cent of pre-COVID levels in the first three months of 2024, compared with 78 per cent in Toronto, 72 per cent in Vancouver and 67 per cent in Montreal.
As a Crown corporation, EDC is not subject to the feds’ new three-day-a-week return-to-office policy.
Spokesperson Zoé de Bellefeuille told OBJ Thursday the organization’s leaders are expected to work in the office at least three days a week, while all other employees are required to come to the office a minimum of twice a week.
“There’s not as much of a push to get back to the office in an effort to be as productive and collaborative as possible,” Doak says of non-private-sector tenants. “They’re not innovating in the same way that private-sector organizations generally are. That’s a risk to the office market in Ottawa.”
Lower rental rates
In addition, he argues that many of the non-profit organizations that call the region home are more “financially sensitive” to rent hikes than private-sector tenants.
“There’s just less of an opportunity to push higher rental rates,” Doak says. “Even places like Calgary, which have a much higher vacancy rate, are attracting net rents that are $10 a square foot or more higher than the Ottawa market. It just hasn’t been a great place to invest for institutional investors.”
Veteran broker Darren Fleming, CEO of Ottawa-based Real Strategy Advisors, agrees the National Capital Region is no longer the “holy grail” for low-risk commercial real estate investors it once was.
Even with the federal government’s recent decision to mandate workers back to the office three days a week, the city still lags behind other major urban areas when it comes to occupying space, Fleming says.
And no one is sure when the feds will offload the office properties on their disposal list, he adds, meaning the future of Ottawa’s downtown office footprint is very much up in the air.
That uncertainty, Fleming believes, does not sit well with institutional investors that traditionally aren’t known for taking big gambles.
Shrinking office footprints
Ottawa’s office market is “much riskier than it’s ever been at any time in recent history,” he says.
“You’re going to get guys like Manulife who are just no longer comfortable with the level of risk associated with those assets. The time to sell (150 Slater) is when it’s still full and there’s a long lease in place.”
While Ottawa still has one of the lowest office vacancy rates in the country at about 12 per cent, Fleming thinks the market is going to get worse for landlords before it gets better.
“We’re seeing it across the board that tenants are generally shrinking (their footprints) by 25 per cent,” he explains. “I think this is Manulife looking to redeploy that capital in perhaps somewhere that’s a little bit safer. It’s just underlining the fact that Ottawa is not necessarily going to be the safe haven for office investment that it’s been.”
Still, both Doak and Fleming believe 150 Slater will command plenty of interest from potential buyers. Doak even speculates the federal government might look at acquiring the property due to its proximity to Parliament Hill and other federal real estate holdings.
“It’s one of a handful of the premier assets in the downtown core,” he says. “Of all the buildings to come up for sale that I can recall recently, this is the trophy asset for sure.”
Fleming agrees the prominent highrise, which remains one of Ottawa’s newest major office developments in the core, is a jewel that should attract multiple bids.
“It’s a good-quality building. It will be in demand. Someone who’s got the wherewithal and the capital to be able to manage that risk will be really interested in this,” he says.
“A lot of investors have been sitting on the bench for a while. But interest rates are coming down. That means there’s more people able to play. It’s hard to speculate on who the likely buyer is going to be, but it’s probably not going to be a super risk-averse pension fund or life (insurance) company who’s there to protect shareholders and pensioners.”
