The office market's future remains shrouded in uncertainty
A downtown Toronto office tower is catching the eye of potential buyers as a Canadian landlord gauges market interest amid a sensed thaw of the market, which has been largely frozen for nearly two years due to rising interest rates.
According to a Bloomberg report, Dream Office Real Estate Investment Trust has enlisted CBRE Group Inc. and Toronto-Dominion Bank to promote 438 University Ave., as outlined in marketing materials. The company is also entertaining offers for another property at 655 Bay St., which has been on the market for over a year.
The surge in remote work has hit Toronto-based Dream and other publicly traded office owners hard. Since interest rates began to climb in 2022, property transactions have been scarce, leaving uncertainty about the true value of these assets. However, with the Bank of Canada signalling a pause in interest rate hikes, there may be clearer ground for buyers and sellers to negotiate prices.
Though interest in bargain deals among suburban office buildings has surfaced lately, Dream took the initiative this month to explore investor interest downtown by announcing the sale of 720 Bay St. for C$135 million ($100 million). These buildings, along with the two others it aims to sell, sit just outside the financial core, where downtown office vacancies have surged to a record 17.4%, according to CBRE.
With many companies embracing permanent remote or hybrid work models, the long-term outlook for office space demand remains uncertain. Moreover, many buildings are unsuitable for conversion to alternative uses like housing, while tenants signing new leases are showing preference for modern, amenity-rich properties, notes CBRE.
Toronto’s recent spike in vacancies was propelled by the influx of newly constructed space from large projects initiated before the pandemic, according to a report from the brokerage earlier this month.
Dream’s University Avenue tower, erected in 1991, is currently 93% leased, with the provincial infrastructure agency as its primary tenant, as per sales documents.
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