A downtown Toronto office building has been sold to a private buyer for $12.55 million, JLL announced.

The transaction highlights the growth of private-capital investor interest in the Toronto office sector, said JLL. Institutional investors have largely kept their capital on the sidelines in Toronto and other Canadian markets due to high interest rates, rising construction costs and the global office market’s struggles with increased vacancy and the hybrid-work movement.

Located at 77 Peter Street, the brick-and-beam building is 76% leased to AppLovin. The 18,253-square-foot structure attracted interest from private investors and owner-users.

“We have been working with this seller for over two years, and this sale signifies not only a significant milestone for our client, but also showcases growing interest from private investors for income-producing properties in Toronto, with some new groups now looking at opportunities in the office sector,” said Jackson Safrata, JLL’s vice-president of capital markets.

Greater Toronto Area office investment sales fell about 43% on the five-year average to $1.5B in 2023, according to JLL. With high costs stifling ground-up development and negative downtown absorption, private investors could explore opportunities to convert traditional office assets to alternative uses like life sciences, residential and education spaces, the company asserts.

Many of the largest office transactions in 2023 involved such conversions, with 50% of deals coming from private investors.

“With most institutional investors sitting on the sidelines, private capital has emerged as the single-largest buyer segment across the commercial real estate sector in Canada,” said Matt Picken, head of JLL’s Canadian capital markets business.