More Bank of Canada interest-rate cuts will spark office real estate transactions, says a leading market analyst.

Ray Wong, a vice-president with Toronto-based data analytics firm Altus Group, expects a number of office investor to sell their assets rather than renew mortgages at interest rates that remain elevated despite two BoC cuts in June and July.

“We’re seeing that already in the market with some of the institutions divesting their office assets
and balancing their portfolios and making a good push here,” said Wong in an interview.

Institutional investors have been in a widespread office sell-off mode as the sector grapples with the effects of high interest rates, the COVID-19 pandemic, growth of the hybrid work movement, market conditions and other factors.

Altus second-quarter market sentiment survey results show that investors have the least appetite for office assets in the next six to 18 months. But Wong also expects the latest BoC rate cuts, and widely expected future reductions, to result in some office acquisitions.

“I think that some of the office owners who see the downside of the marketplace, they may take the opportunity to try to add [inventory] at a certain price,” said Wong.

“But that also goes back to why people are buying. They’re looking at the price points that they can get certain assets as well as potential redevelopment of the asset down the road. So, I think there’s buyers and sellers on both sides of the office arc.”

But office investors motivated by interest-rate reductions will stick to the overall market trend and hold on to higher-quality assets.

“So, I think those aren’t going to move as much compared to some of the other assets, the B or C assets, in the market,” said Wong.

Photo: Courtesy of Altus Group