Canada’s Top-15 CRE Transactions During 2024

Student housing portfolio acquisition, major shopping centre deal take top spots

A $1.7-billion student housing portfolio and a Montreal-area shopping centre transaction were the top commercial real estate transactions in Canada during 2024.

Cadillac Fairview’s $553.2 million buyback last August of its 50 per cent interest in the 266-store CF Carrefour Laval shopping centre from TD Asset Management, was the biggest single-asset transaction 2024 by dollar value, according to Altus Group.

But that was eclipsed by the year-end closing of Forum Asset Management’s acquisition of Alignvest Student Housing REIT, a $1.7 billion deal which created the country’s largest private owner of student housing accommodations. Forum’s REIIF fund now holds a nationwide portfolio of approximately 10,500 student housing beds.

The deal for the 1.2-million-square-foot mall in the Montreal suburb provided proof of a resurgence in retail investment. Later in the year, Cadillac Fairview announced it would build 20- and 11-storey multifamily towers comprising 365 homes at the shopping centre.

Unlike 2023, in which most of the Top-15 transactions were in the Greater Toronto Area and Ontario’s Greater Golden Horseshoe area, about half of 2024’s Top-15 were scattered throughout the country. This shows “investors are looking to diversify,” according to Raymond Wong, vice-president, data solutions, client delivery at Altus Group.

Some of the top deals involved downtown office buildings – including Brookfield Properties’ acquisition of 2 Queen St. E. in Toronto – thus indicating there is still demand for quality downtown office space, Wong said.

Year-end transaction numbers down in Canada

Total Canadian real estate investment activity last year ended up below 2023 numbers – at approximately $50.5 billion according to Altus Group’s Canadian CRE Investment Trends – compared with $54.8 billion in 2023. That’s a reduction of about eight per cent.

Investment activity reached $8 billion in Vancouver versus $7.3 billion in 2023 and Montreal was at $9.6 billion compared with $8.1 billion in 2023. However, in the GTA, investment activity dropped to $17.1 billion compared with $22.1 billion in 2023.

Wong said while the challenge for investors in 2023 was high interest rates, the question now is by how much they will continue to drop and the frequency of interest rate cuts. The impact of a low Canadian dollar has become a concern this year, he said.

The impact of U.S. tariffs could also become a factor.

Wong says foreign investors still have an appetite for Canadian real estate – two of the top five deals last year involved foreign investors. “They still see Canada as a safe haven (with) good stability and solid assets.”

Canada’s Top-15 transactions in 2024

Here are the Top-15 largest (by dollar value) commercial real estate transactions in Canada in 2024:

1. Forum Asset Management acquisition of Alignvest Student Housing REIT for $1.7 billion.

2. Cadillac Fairview’s $553.2 million buyback of its 50 per cent interest in the 266-store CF Carrefour Laval shopping centre from TD Asset Management.

3. Morguard Corp. sale of a portfolio of 14 hotel properties with 2,248 rooms in Ontario and Halifax to InnVest Hotels and Manga Hotel Group for $410 million. InnVest acquired 10 of the hotels: Marriott Toronto Airport, Courtyard Toronto Airport, Residence Inn Toronto Airport, Hotel Carlingview, Courtyard Vaughan, Courtyard Markham, Residence Inn Markham, Townplace Suites Sudbury, Cambridge Suites Halifax and The Prince George Halifax.

4. Prologis, a San Francisco-based REIT, acquired a 1.3 million-square-foot distribution centre at 8450 Boston Church Road, in Milton, Ont. for $361 million from New York-based Sycamore Partners. It will continue to serve as a Rona distribution centre through a 15-year leaseback. The site formed part of Sycamore Partners’ acquisition of Lowe’s Canadian retail business and Rona rebrand.

5. Primaris REIT acquired the million-square-foot Les Galeries de la Capitale shopping centre in Quebec City for $325 million in a transaction which closed on Oct. 1. Oxford Properties had been the previous owner.

401 West Georgia St., in Vancouver. (Google Maps)
The 401 West Georgia St., office tower in Vancouver. (Google Maps)

6. Germany-based Deka Immobilien Investment GmbH spent $300 million to acquire 22-storey 401 West Georgia St. and nine-storey 402 Dunsmuir St. in downtown Vancouver from Oxford Properties. The majority tenant is Amazon and the buildings total just over 416,000 square feet of office space.

7. Brookfield Properties acquired Village Green Apartments, a 705-unit, three-tower apartment complex at 40 Alexander St. in Old Toronto for $264.4 million from Greenrock Property Management.

8. Prologis spent $258.1 million to buy a 90-acre industrial property and 1.5-million-square-foot warehouse in the Toronto suburb of Brampton. Canadian Tire said the distribution facility, located near Bramalea and Steeles roads, was no longer needed and that the company would operate out of its newer, more modern, more highly automated facilities in the Greater Toronto Area.

9. H&R REIT sold its Corus Quay office building, along the Lake Ontario waterfront in Toronto, to George Brown College and Halmont Properties Corp. for $232.5 million. The eight-storey building at 25 Dockside Drive has 479,437 square feet of space.

10. Three private investors in Quebec acquired the Norgate portfolio of approximately 70 older, small apartment buildings in the Montreal borough of Saint-Laurent from Starlight Investments and KingSett Capital for $197.5 million.

11. Choo Communities sold Envie Rideau, its 296,900 square foot student housing building at 256 Rideau St. in Ottawa, for $183 million to Forum Asset Management. The 579-unit, 737 bed property has since been renamed Alma @ ByWard Market.

12. Brookfield Properties spent $172.8 million to buy the 483-unit, multifamily property at 77 Davisville Ave. in Old Toronto from Greenrock Property Management.

13. Brookfield Properties spent $161.3 million to buy out AIMCo and CPP Investments to be the sole owner of the 477,000 sq. ft. 2 Queen St. E. office tower in downtown Toronto.

14. Seventh Centre Residential Properties spent $154.7 million to obtain from 7th Avenue Sky Property a 50 per cent undivided interest in TELUS Sky, at 685 Centre St. SW in Calgary. The 60-storey building, one of downtown Calgary’s most iconic high-rise towers contains commercial and residential components.

15. Vancouver-based Hydrogen Technology & Energy Corp. paid $145 million to purchase a 21-acre industrial property at100 Forester Street in North Vancouver from specialty chemicals producer ERCO Worldwide. The site will be home to a 15 tonne-per-day clean hydrogen plant to meet a growing market demand for low-carbon transportation fuels.

 

EDITOR’S NOTE: This story was updated to clarify CF Carrefour Laval was the largest single-asset transaction; that the Forum / Alignvest transaction was the largest overall transaction; and to add information about the Primaris / Oxford transaction. This information had not been included in the data supplied to RENX.

Source RENX.ca. Click here for the full story.

The Market At 70King Revitalizes Faded Downtown Oshawa Social Hub In Canada’s Former ‘motor City’

Redevelopment of the Year for the Toronto Market

It was once a centrepiece of the economy in a General Motors-dominated town east of Toronto, and the redevelopment of the hotel property in Oshawa has become part of the city’s downtown revitalization story.

The Genosha Hotel first opened its doors in 1929 and welcomed numerous high-profile guests from business executives to politicians visiting the bustling city. Humming with activity, the building housed the bus terminal, radio station and several shops. The hotel was considered the centrepiece of downtown Oshawa, then considered to be “Canada’s Motor City.” As downtown’s social hub, The Genosha hosted banquets, weddings, dinners and dancing at its prominent corner location on King and Mary streets.

But suburban sprawl resulted in the slow decline of downtown Oshawa as the hotel went from luxury to a boarding house and finally a strip club before being abandoned in 2003.

The Genosha was saved from demolition due to a 2005 designated heritage status for its Chicago Art styling.

The property changed hands multiple times through failed attempts by developers to repurpose the property until Oshawa-based Summers & Co. Developments Inc., under the leadership of its founder and CEO Rick Summers, jumped in with a vision to restore the property’s status.

The project, now branded as the Market at 70King has earned a 2025 CoStar Impact Award for redevelopment in Toronto, as judged by real estate professionals familiar with the market.

About the project: Summers & Co. implemented a plan to create 86 luxury rental units and a nine-restaurant culinary destination that would draw people back downtown. Working closely with Heritage Oshawa, the developer restored the exterior of The Genosha’s original brickwork. The bricked-in main floor was opened back to its original form, the original limestone cladding was recreated, and the upper give floors repurposed into a mix of studio, one-bedroom and two-bedroom rental units.

In 2019, the units were fully leased, a rooftop solar farm was brought online, and cashflow stabilized, with the building refinanced to prepare for a nine-restaurant food hall.

While larger, more-established restaurant franchises would have offered more stabilized buildouts and leases, Summers adopted for local owner-operated restaurants, creating a diverse space that focused on attracting local business downtown.

To overcome skepticism of the downtown location and inspire belief in the viability of the overall project, Summers & Co. built out the base restaurant pods and hosted an exclusive pitch night that secured the first five leases, which allowed them to gain momentum and lease the remaining space.

The restaurant owners’ vision was coordinated with architectural, engineering and design packages. A particularly difficult element was crafting an exhaust hood system that serviced all restaurants while navigating an existing heritage structure and mitigating its impact on the final design aesthetic.

Summers & Co. also took on the roles of project management and general contracting on the buildout of each restaurant to ensure a coordinated grand opening.

A specialized elevator known by LULA was deployed to create fully accessible space. This elevator leads to basement preparation areas for the restaurants and a speak-easy-themed event space that references the prohibition period during which The Genosha was built.

Summers & Co. also worked with the city to reclaim a traffic lane to create two permanent sidewalk patios through an encroachment agreement.

The residential and commercial spaces are now fully leased, with a waiting list of restaurants seeking to join the building’s food hall.

Oshawa Mayor Dan Carter has widely praised this development declaring: “The Genosha Hotel redevelopment project is the last piece of the puzzle. Picking up where others failed, Summers & Co. has built on the success of their past projects in the city and revitalized the historic building, which I believe will be the cornerstone of downtown development.”

What the judges said: “This redevelopment is impactful and worthy of the award because it delivers a highly desirable mixed-use project at a significant scale and in a node that provides many community benefits. This project succeeded where others had failed in converting a very undesirable use into something more meaningful and beneficial for the city,” said Paul Macchione, senior vice president of Industrial with Cadillac Fairview Corp.

“A really good reuse of an older building in a challenged market (downtown Oshawa),” said Chris Langstaff, Canada head of research and strategy with LaSalle Investment Management.

“I know Oshawa well enough to remember the eyesore that used to be there. This is an excellent project. I love seeing the rejuvenation of this asset. I know the building and I am so happy to see it restored and reactivated. The kitchen area looks amazing,” said Allen Grinberg, principal at Avison Young.

“The Market at 70King is the most impactful of the projects we considered, from its history to its transformation to a mixed-use development in a much-needed area of downtown Oshawa. Taking influences from art deco Chicago brings vibrancy to the project. The revitalization of the downtown core has a direct impact on the larger community. Accessibility and sustainability are key themes that stand out in this development,” added Alanna Cantkier, national vice president of retail leasing at JLL.

They made it happen: The development team at Summers & Co. Developments Inc. that rescued The Genosha was led by CEO Richard Summers and included Jeff Steffen, chief operator officer, David Lee, director of operations of Summers & Co., as well as Joel Gerber, principal of Joel Gerber Architects; Michelle Peer, a principal of 2Co, Jude Kamal, Principal of Sansa Interiors, and Evan Kim, principal at EK Engineering.

Source CoStar. Click here for the full story.

Toronto’s Slate Asset Management Continues To Expand In Europe

Global investor strikes deal to buy 45 retail properties in Germany

Toronto-based Slate Asset Management is increasing its presence in Germany with a deal to buy 45 retail properties as it further shifts its investment focus to essential properties such as grocery stores.

Slate said the properties are near major populations and are fully leased under long-term agreements to some of Germany’s largest grocery and everyday goods distributors including REWE Group, Schwarz Group, Edeka Group, and Aldi. Slate did not provide details about the individual properties it’s acquiring but said the assets were held in four individual portfolios.

“In a muted transaction environment, our European team has successfully executed nearly half a billion euros of essential real estate transactions in the first three months of the year,” said Sven Vollenbruch, the Slate managing director who leads its European investments, in a statement. “These portfolios of high-quality, stabilized grocery properties are underpinned by Germany’s leading food and essential goods distributors.”

The Toronto-based global investor and asset manager has turned its focus on essential real estate and infrastructure assets as part of its growth plan. The company has $10 billion in assets under management in North America and Europe and 10 global offices.

“Slate has firmly established itself as a leading owner and operator of essential real estate in Germany, and we believe the strong pipeline of opportunities we have cultivated in this sector will drive our continued growth in Germany and across broader Europe,” said Vollenbruch.

Slate’s European essential real estate strategy is focused on acquiring, owning, and operating cash-yielding essential real estate assets, such as grocery and affiliated warehouses and logistics assets. The company operates a portfolio of over 500 essential real estate assets across Europe that Slate and its capital partners own.

Subject to standard closing conditions, the transactions are expected to close in the first quarter of this year.

Source CoStar. Click here for the full story.

Office Sales Dry Up Across The Greater Toronto Area

The office market across the Greater Toronto Area has seen a significant drop in transaction volumes compared to pre-pandemic years. While the drop in office utilization is likely a factor, tighter capital markets and growing uncertainty surrounding the stability of the Canadian economy are also contributing.

Comparing the last three years to the three years leading into the COVID-19 pandemic, quarterly office sales volume in the GTA has dropped by just under 30%. This overall decline has occurred to some degree across most of the region’s office submarkets.

One notable exception is the Downtown Central office submarket, defined by CoStar as the area just North of the Financial Core and stretching from Queens Street to Dundas and between Church Street to John. Even though the difference in the dollar amount for office sales between the two periods is relatively low, marginally higher than $14 million, the proportional increase is material.

Average quarterly sales volumes increased 15-fold in the last three years compared to the equivalent period leading into COVID-19. Notably, this surge in sales volume is attributable to a single large deal in December last year, the $165.25 million sale of 2 Queen St. East. CPP Investments and AIMCo sold their 75% interest in the 477,000-square-foot office building to Brookfield Asset Management, Halmont Properties Corp. and Toronto Metropolitan University.

Conversely, the Downtown North office submarket, located just above the Downtown Central submarket, experienced the most significant decline in office sales, with a quarterly drop of roughly $110 million. Once again, this drop can be attributed to a small number of large deals that occurred before the pandemic. A total of 21 office sale transactions totaling over $1.8 billion sold in the Downtown North submarket three years before COVID, with five of the deals accounting for over $1.6 billion of this sales volume.

Transaction volumes in the office sector will likely remain low compared to historical norms as Toronto grapples with more restrictive capital markets and lower office utilization.

The current downside risks are compounded by economic uncertainty caused by a potential trade war and tariffs. There are no office transactions under contract for more than $20 million across the entire GTA as of this writing.

Source CoStar. Click here for the full story.

More Collaborative Approach Needed To Address What Ails The Office And Residential Sectors

Balancing the risks of office and multifamily markets could help stabilize the economy

Canada’s various real estate markets are facing myriad crises. Office landlords are reckoning with the erosion of net operating incomes, condo developers are sitting on landbanks unable to get development financing, ringing alarm bells for future unemployment in the construction industry, and the country faces the lurking threat of a tariff war with its biggest trading partner.

Each issue threatens the economy independently, but a more collaborative approach to addressing them may offer a mutually beneficial opportunity. To understand the potential opportunity, let’s examine each challenge individually.

As office vacancy increases, so do the landlord’s expenses, as costs that would have been covered by a tenant, such as insurance and maintenance, become the building owner’s responsibility. A well-capitalized investor, such as an institutional pension fund, may be able to weather the storm. Still, the financial reality of this situation is coming into sharper focus as office occupancy appears to be plateauing well below pre-pandemic levels.

Meanwhile, notwithstanding the supply and demand mismatch in residential markets, which should bolster increased development, the current economic environment renders new residential development relatively unattractive.

Speaking at a recent event at the University of Toronto’s Rotman School, Brad Lamb, a prominent condo developer in Toronto, noted that a sale price of about $1,600 per square foot is required to get shovels in the ground for new developments in the Greater Toronto Area. At the same time, existing stock is selling for about $500 per square foot less than the construction-feasible price. This means that construction starts are grinding to a halt even as demand for units continues to grow.

The slowdown in housing construction is likely to exacerbate affordability and availability concerns and will also increase unemployment in the construction trades as projects are completed and no new ones commence construction.

Simply put, large-scale office landlords need an off-ramp for some of their assets while the government needs to ramp up housing production and underpin construction employment.

If approached proactively, these current weaknesses can offset each other. Converting office spaces to residential units, though often seen as not financially viable, offers a faster and less expensive solution than building new residential structures from scratch.

Residential developers in Toronto lament the cost of development levies, suggesting they can account for up to 30% of the building cost or $70,000 per door. However, these levies have already been paid for existing office buildings. By aligning the needs of these three issues, housing can be produced quickly and with financial efficiency.

Furthermore, office conversion opens the door to a new type of residential development. Over the last decade, many residential units were designed for investors instead of occupants. Modern office floor plates have larger ‘core to window depth’ than conventional residential high rises, limiting fenestration. This creates an opportunity to create larger units, which may include considerable storage, separate workspaces and utility rooms—luxuries currently reserved for homeowners with a picket fence around their yard.

Municipalities could collaborate with large-scale office landlords to make these conversions financially viable, fast-tracking the release of much-needed housing. Moreover, the current tariff environment may result in a surplus of building materials, which are too expensive to export to American markets. These materials could be redirected to support conversion projects in Canada.

This would help strengthen our pension funds, benefitting all working Canadians, by mitigating financial losses that result from shifting asset allocations from office to multifamily. It would also fast-track housing production, nurture employment within the construction industry, and drive economic growth within national borders.

In strong, growing markets, it can be difficult to identify the point of financial compromise needed in deal-making. When all parties want to maximize their respective profits, division is common. Conversely, mutual attempts to limit losses can have a unifying impact.

As Charles Darwin once pointed out, “In the long history of humankind (and animalkind, too), those who learned to collaborate and improvise most effectively have prevailed.”

Source CoStar. Click here for the full story.

Canadian Government Defends Acquisition As It Plans To Sell Other Office Properties

Officials say purchase from Allied REIT will save taxpayers $67 million

Canada’s federal government has purchased an office property in downtown Ottawa after vowing to sell off or repurpose up to half of the office properties it owns in the national capital area.

The Canadian federal government paid about $51 million for a two-building portfolio containing the Chambers, a 14-floor office tower at 40 Elgin St., and a four-floor office building from the late 1800s at 46 Elgin St. The Chambers, completed in 1994, contains just over 200,000 square feet of office space.

Toronto-based Allied REIT was the seller. Following the deal, it no longer owns properties in the Ottawa area.

Last May, the federal government stated it aimed to sell or repurpose up to half of its office properties in Ottawa and Gatineau, Quebec, over the next decade in the capital area as part of what it called “responsible government spending.”

The new acquisition does not jibe with that plan, said one watchdog group.

“Taxpayers have every right to scratch their heads at this news,” said Franco Terrazzano, federal director of the Canadian Taxpayers Federation, in an email to CoStar News. “The government said it was getting rid of offices but buying new offices sure sounds like a silly way to get rid of offices.

“Taxpayers need and deserve a clear explanation from the government outlining why bureaucrats need new office buildings when they’re supposed to be selling off buildings.”

The purchase of 40 and 46 Elgin will result in a $67 million savings for the federal government, a government media representative told CoStar News in an email. Now that it owns the properties, the government will not have to pay to rent space at 40 Elgin.

“Since 1998, PSPC (Public Services and Procurement Canada) has leased space in the Chambers building, located at 40 Elgin Street, to serve as long-term administrative office space for the Senate of Canada,” media relations representative Jeremy Link said in an email. “The building is currently being fit-up to provide swing space for the Block 2 redevelopment project and will be used to accommodate members of the Senate.”

The Canadian Senate is a body made of 105 senators appointed by the governor general on advice from the prime minister. Senate approval is required for bills to become law, although the body rarely invokes its power of rejection.

The office complex is located a short distance from the National War Memorial, Confederation Square, the Office of the Prime Minister and Parliament Hill.

The availability rate for office properties in downtown Ottawa rose from 14.9% to 15.7% in the fourth quarter, according to an Avison Young report that noted that the downtown area has 23,000 square feet of vacant Class A office space, more than all of the nearby suburbs combined. The average rate for a downtown Ottawa office property is just over $24 per square foot per year, while suburban equivalents are in the range of $13 to $14 per square foot in the Ottawa region.

Allied REIT did not immediately reply to telephone and email messages from CoStar News asking for comment.

Source CoStar. Click here for the full story.

Welltower To Buy Amica Retirement Home Chain From Ontario Teachers’ For $4.6 Billion

Deal with global investor will give US REIT 31 complexes across Toronto, Vancouver and Victoria

Welltower, a publicly traded real estate investment trust based in the United States, agreed to buy the Amica Senior Lifestyles chain from the Ontario Teachers’ Pension Plan as demand rises across Canada for retirement homes.

The Toledo, Ohio-based seniors living company, said it will pay the pension fund $4.6 billion, or approximately 3.2 billion United States dollars, for the chain’s 31 ultra-luxury Amica-branded retirement complexes in Toronto, Vancouver and Victoria, British Columbia. Welltower said the negotiated price represents “a substantial discount to estimated replacement cost” for the properties.

Welltower also said the deal includes seven properties under construction that are valued $1.25 billion as well as nine projects in the permit process valued at $150 million. As part of the pending deal, Welltower said it will also acquire a minority interest in Amica’s management team.

The transaction is just the latest of its kind for Welltower and occurs at a time when occupancy rates have risen in Canadian retirement home operations after dipping significantly during the recent pandemic. Demand for retirement homes in Canada is expected to further rise as the seniors population grows and new retirement home construction projects has slowed.

CBRE said in its latest report on valuations in that sector that institutional investors are starting to return while private buyers are expanding their portfolios.

The deal requires regulatory approvals and is expected to close in the fourth quarter. Welltower said that as part of the deal it will take over $560 million of Canada Mortgage and Housing Corp.-insured debt with an average interest rate of 3.6%.

“Construction starts remain at historic lows as a share existing inventory. While conditions appear ripe for new development in the sector, persistent high construction costs make the case for investment in existing projects that much stronger at this time,” said the real estate company in a report last month.

Bank of Montreal analysts initiated coverage on publicly-traded seniors housing companies this year in a report about baby boomers lifting the sector.

“With pandemic disruptions firmly in the rearview mirror and an aging population now upon us, we believe an attractive supply/demand picture will help drive a multi-year period of above-average organic growth,” said the analysts in a report. “The boomers are here—demographic tailwinds will support demand for year. As baby boomers age, growth in Canada’s seniors population is materially accelerating. Individuals aged 75+ are expected to reach circa 5.3 million people over the next 10 years.”

Shankh Mitra, Welltower’s CEO since 2020, said the Amica properties offer upside potential.

“Against a backdrop of rapidly growing demand and limited new supply, we expect the portfolio to drive outsized revenue and cash flow growth in the coming years,” he said in a statement.

“For the last 15 years, Ontario Teachers’ has acted as an extension of our internal team,” Amica’s Ezer said in a statement.
Welltower has been involved in other Canadian retirement home properties.

In October 2023, Welltower purchased 12 retirement homes in Quebec from Cogir for $885 million and soon after announced an agreement to divide a portfolio of seniors properties it held in partnership with Canadian retirement home firm Chartwell that left Welltower with 23 operations and Chartwell 16, along with a payment of $97.2 million to Chartwell.

The OTTP listed assets of $255.8 billion in its most recent tally made midway through 2024. Its real estate holdings, managed through its Cadillac Fairview subsidiary, were valued at just over 10% of the pension fund’s holdings, with 68 properties across Canada assessed at $28 billion. The OTTP’s largest recent transaction prior to the Amica sale took place last October when the pension fund purchased its partner TD’s 50% stake in the CF Carrefour Laval shopping centre in Laval, Quebec for $553 million.

Source CoStar. Click here for the full story.

North American Office Markets Take Different Paths After Emerging From Under Pandemic Cloud

While office markets are finally recovering, Canada appears to be trailing its US counterpart, especially in transactions

As we approach the fifth anniversary of the COVID-19 shutdown, it is worth assessing how North American office markets have since evolved. While Canada and the U.S. saw an appreciable increase in office availability following the pandemic, the relative increases have been worse in this country.

Canadian office availability increased by over 60% compared to pre-pandemic levels, compared to about a 40% increase in the United States. Note that Canada’s current office availability rate of 12.2% is still lower than the U.S. at 16.1%, but Canada has moved further away from its long-term equilibrium, which has always been lower than the U.S. due to structural supply and demand differences between the two countries.

Part of the reason office availability has increased comparatively more in Canada might be due to higher work-from-home/hybrid work rates for office employees following the pandemic. A 2023 study in The Economist magazine found that Canada has the world’s highest work-from-home/hybrid work rate. The report noted the difference may reflect structural factors, including climate, housing affordability, comparatively long and congested commuting times, and ineffective transit in some of Canada’s major urban areas like Toronto. This combination of factors resulted in Canada experiencing a bigger erosion in office utilization rates than the U.S. over the past five years.

The supply side is another major factor explaining why office availability is higher in Canada. Over the past several years, Canada has been building more new office space than it typically has relative to the U.S. While tenants have been solid in leasing this new office space, backfilling the older space vacated by the tenants has been less successful, given their clear preference for newer buildings. This also contributes to a proportionately greater increase in total available office space in Canada.

Meanwhile, some cities in the U.S. are beginning to face a possible shortage of the type of first-generation new office space that is most in demand. This could kick off a new development cycle earlier than in Canada, where intentions to build more office space are virtually non-existent.

To be sure, Canada and the U.S. are now experiencing a similar recovery in office leasing volumes, perhaps reflecting return to the office (RTO) work strategies recently adopted by some firms. Although leasing volumes are well off their pandemic lows, neither country has returned to the office leasing levels typically achieved before the pandemic. This is especially true in Canada since the downturn in leasing activity relative to pre-pandemic levels was comparatively deeper than in the U.S.

Despite the pandemic having a slightly worse impact on Canada’s office market fundamentals over the past five years, the situation in the office investment market tells a different story. Over the past five years, office market capitalization rates increased more sharply in the U.S. compared to Canada. For example, U.S. office cap rates have historically been 100 basis points higher than Canada’s (a basis point is one-hundredth of one percent). However, by the end of 2024, the relative “discount” in U.S. cap rates to Canada widened to 130 basis points.

While part of the increase in U.S. cap rates reflected eroding space market fundamentals, the widening discount to Canada was primarily due to capital market forces. Office ownership in the U.S. is more fragmented than in Canada, with merchant builders and small investors representing a larger market share. Since these investors typically employ significant debt in their capital structures, the relative rise in the cost of capital as interest rates increased during the post-pandemic period forced many U.S. office owners to take write-downs and even resulted in some distressed sales. In reaction to this distress, U.S. market cap rates rose accordingly.

In contrast, a comparatively higher percentage of well-capitalized institutions, such as pension funds, own office properties in Canada. Most are equity investors who use very little debt in their capital structure. As a result, many of these owners have felt little pressure from the capital markets to sell or even “mark-to-market” asset values despite a similar, if not worse, erosion in space market fundamentals than the U.S. over the past five years.

With the Bank of Canada cutting interest rates more aggressively than the U.S. Federal Reserve, some Canadian office owners may also be hoping that Canada’s relative cost of capital will sharply fall and ultimately preserve their property valuations.

Interestingly, these capital market dynamics may be a key reason why office investment transactions are beginning to evolve differently in Canada and the U.S.

While neither market has seen office investment transactions recover to pre-pandemic levels, a faster recovery appears to be taking hold in the U.S. In 2024, the U.S. office market recorded $42 billion in sales, a nearly 20% increase from the year before. Even more telling, sales quickened as the year unfolded, with fourth-quarter sales volume surging 63% over the same period in 2023. According to some investors, the reawakening in office transactions reflects the growing opportunity to buy properties with great long-term fundamentals at attractive pricing before a full recovery sets in.

In contrast, office sales remain near all-time lows in Canada, particularly for larger assets and portfolios. The vast majority of building sales, if any, have tended to be small suburban properties or transactions initiated by an end-user such as a school or local government. The main reason for the lack of trading appears to be a lack of liquidity in the market, as potential buyers and sellers in Canada still have widely different expectations about office property pricing in the private market.

This situation could devolve into a vicious circle. Fewer office trades mean fewer sales comps and continued uncertainty about pricing and valuations, leading to fewer sales.

Unfortunately, five years after the pandemic, investor uncertainty in Canada could become magnified further due to a potential trade war with the U.S. As a result, Canada’s elusive office investment recovery will likely continue diverging from its neighbor to the south for the foreseeable future.

Source CoStar. Click here for the full story.

Real Estate Holdings Weigh Down Ontario Teachers’ Performance

Expansion in European logistics market bright spot during 2024, pension fund says

Ontario Teachers’ Pension Plan says it achieved solid financial growth in 2024, but its real estate holdings played a role in one the country’s largest pension funds missing its benchmark return rate.

Ontario Teachers’ said its one-year total fund net return last year was 9.4% compared to 1.9% in 2023. It also said its net assets grew to $266.3 billion, up from $247.5 billion in 2023.

Despite the return, the results did not meet the benchmark, or target, return of 12.9% for 2024, Ontario Teachers’ said. The pension fund released its annual results on Thursday.

“The benchmark underperformance was primarily attributed to assets in private equity and real estate trailing their respective benchmarks,” the pension fund said.

Ontario Teachers’ did say that one of its 2024 property highlights was expanding its logistics real estate portfolio across Europe, where it acquired eight fully leased logistics assets in France and three warehouses in Germany.

The Toronto-based pension fund had assets of $266.3 billion as of Dec. 31 and 343,000 working members and pensioners. It owns 100% of Cadillac Fairview Corp., one of the country’s largest real estate companies.

“We had positive contributions from across the plan, with notable success in venture growth, credit, inflation-sensitive and public equity investments. The resilience of our portfolio, combined with our proactive approach to creating value, has positioned us strongly in an unpredictable economic climate,” said Jo Taylor, president and CEO of the pension fund, in a statement. “Our investment portfolio is well placed to deliver strong risk-adjusted returns for the plan in 2025 and meet our long-term obligations to the members we serve.”

Real estate had a negative 0.7% return, well below the 5% target rate for 2024. It was the second consecutive year of underperformance by the pension fund’s real estate holdings. In 2023, its real estate return was negative 5.9% versus a benchmark of a 2%.

Source CoStar. Click here for the full story.

Canada’s Largest Pension Fund To Sell Its Headquarters

Canada Pension Plan Investment Board said it retained CBRE to sell its head office complex in downtown Toronto, a move that comes after the country’s largest pension fund announced it would move its global headquarters next year.

CBRE’s offering is for a 100% freehold interest in 1 Queen St. East and 20 Richmond St. East, a two-building office complex that contains 503,930 square foot of space and occupies a full city block.

Marketing materials obtained by CoStar News said the property offers potential buyers “a transformative opportunity to reimagine an iconic office complex in the heart of Toronto’s financial core.”

CPP Investments, the group that manages the Canada Pension Plan on behalf of 22 million contributors and beneficiaries, plans to relocate to 330,000 square feet in the second tower in CIBC Square at 141 Bay St.

The 50-storey tower is a joint development project between Montreal-based Ivanhoé Cambridge and Houston-based Hines that broke ground in 2021. It is expected to be completed in July, according to CoStar data.

CPP Investments said it will continue to anchor its current complex until it moves into its new head office next year. The complex includes a 398,527 square foot 26-storey tower on Queen and a 105,403 low-rise office property on Richmond that was constructed in 1893 and has heritage importance.

The two buildings are connected by a five-storey glass atrium, ground and concourse retail, and a four-level parking garage.

High-profile location
CBRE noted the complex is located at Yonge Street and Queen Street, a high-profile corner connected to Toronto’s underground PATH system and two subway stations that will include connections to the new Ontario Line, scheduled to open in 2031.

The complex has flexibility that permits residential redevelopment and hospitality conversion concepts.

“The mixed-use official plan designation and strong precedence of high-rise residential developments in the immediate node support compelling site densification strategies,” CBRE said in its flyer.

In 2013, CPP Investments said it acquired 100% of 1 Queen Street East and the adjoining 20 Richmond Street East from the Ontario Pension Board for $220 million.

Excluding CPP Investments, 1 Queen is 9.6% occupied and 20 Richmond is 27.3% occupied.

Officials with CPP Investments declined to comment.

Source CoStar. Click here for the full story.