OMERS suffered a 7.2% loss on its real state investments in 2023.

The Toronto-based pension fund manager recorded the decline after posting a 13.6% net return a year earlier. The downturn was attributed to elevated interest rates impacting property portfolio valuations.

The parent organization of Oxford Properties incurred a net investment loss of $1.5 billion on real estate investments in the past year, in stark contrast to the net investment income of C$2.6 billion in 2022.

According to OMERS’ annual report, higher long-term borrowing costs led to increased discount rates and terminal capitalization rates across all sectors, contributing to the weakened performance in real estate and private equity.

“In particular, the office sector, which represents 21% of Oxford’s real estate portfolio, came
under the most strain,” said OMERS. “Despite low vacancy rates in Oxford’s office portfolio, negative market sentiment from investors towards the asset class resulted in lower valuations. While pricing declines were also experienced in other real estate asset classes, these were partially offset by valuation increases from favourable leasing mainly in our industrial and retail sectors.”

Private equity yielded 3.9%, down from the previous year’s 13.7%.

Consequently, the fund’s overall annual return stood at 4.6%, falling short of the established benchmark of 7% set at the outset of 2023.

OMERS is the acronym for the Ontario Municipal Employees Retirement System, which ranks among Canada’s largest institutional investors.