True North Commercial REIT said in financial filings this week it has agreed to sell the 11-storey Narono Building at 360 Laurier Ave. W. to an unnamed buyer for about $17.5 million.
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As downtown Ottawa tenants continue to shed office space, a prominent publicly traded real estate firm is selling a building it purchased four years ago after the federal government vacated the property in February.
True North Commercial REIT said in financial filings this week it has agreed to sell the 11-storey Narono Building at 360 Laurier Ave. W. to an unnamed buyer for about $17.5 million. The transaction is expected to close in the middle of June.
The Toronto-based company purchased the 107,000-square-foot, class-C building in 2019 from Dream Office REIT for $24.5 million.
The federal government occupied more than 101,000 square feet in Narono Building, with a few ground-floor retailers renting the remaining space. The anchor tenant, the Correctional Service of Canada, also occupies most of another True North property, the 280,000-square-foot Sir Wilfrid Laurier Building next door at 340 Laurier Ave. W.
However, the feds did not renew their lease at 360 Laurier Ave. and the Correctional Service moved out earlier this year.
In financial documents filed with regulators this week, True North said that selling the building – which was constructed in 1968 and extensively renovated a decade ago – is “advantageous given the significant re-leasing costs and loss of income associated with replacing the vacancy.”
True North did not immediately respond to requests for comment from OBJ.
The transaction comes as Ottawa’s downtown office vacancy rate has soared to record levels in recent months.
While demand for higher-quality class-A space remains relatively strong, the overall downtown vacancy rate has more than doubled since before the pandemic as tenants opt not to renew leases or shrink their footprints in less desirable class-B and C properties.
According to real estate brokerage Colliers, the vacancy rate at class-C buildings in Ottawa’s core has nearly doubled from 17 per cent to 32.8 per cent since the first quarter of 2022 – a hike driven largely by the feds’ decision to vacate 360 Laurier.
As the “flight to quality” from lower-class properties to premium offices accelerates, owners of aging, less efficient properties that are bleeding tenants are now trying to figure out how to make those assets more marketable.
“What we’re seeing is this gap getting wider and wider between the haves and the have-nots,” Louis Karam, the managing director of CBRE’s Ottawa office, told OBJ last month.
Although some industry experts have suggested that aging office towers could be repurposed as residential buildings, the managing director of Colliers’ Ottawa office said landlords need to start thinking about other potential uses for class B- and C space, such as renting it to professionals like doctors and dentists.
Warren Wilkinson added that if that doesn’t work, more drastic measures might need to be taken.
“We just need to be creative with how we’re going to get through (the current office downturn),” Wilkinson said in an interview with OBJ in April.
“If demolition and rebuilding is an option, then I don’t think anyone would look at a developer and say that’s the wrong move if they’re sitting on massive amounts of vacancy in an empty building for a significant period of time.”
