Province’s Quest to Buy Downtown Toronto Office Buildings will Face Challenges: Wong
The Ontario government will face challenges as it attempts to acquire office buildings in downtown Toronto, says a leading commercial real estate analyst.
The Globe and Mail has reported that the province plans to purchase downtown properties for its own future use as part of an effort to get employees back in the office instead of working remotely. But Ray Wong, a vice-president with Toronto-based Altus Group, told Connect that the government will have to be very selective when it comes to pursuing purchases.
Workers want to work in offices near transit and plenty of amenities, said Wong. But such quality product is difficult to acquire, even amid high vacancy.
“There is a premium attached to it, so whether or not [the government] can actually get those buildings to fit [its pricing] criteria is another question,” said Wong.
According to the Globe, the province’s “mandatory requirements” include buildings with 200,000 to 600,000 square feet of office space within a 10-minute walk of the subway or a 10-minute drive to a major highway. The publication cited a provincial procurement website as the source.
Infrastructure Ontario has contracted JLL to advise it during the search process and will consider buildings with an estimated value of less than $500 per square foot, according to the Globe, which cited the provincial procurement website.
But that $500-psf level is low by downtown Toronto standards. The area is experiencing a flight to quality as tenant companies seek high-quality assets in the core to help retain employees and woo them back to the office.
Although B and C class buildings might be available, Wong said it remains to be seen how much the province is willing to invest in upgrades.
“Right now, most of the demand space is the highly amenitized office building,” he said. “I’m not sure that $500 a square foot works.”
Interested sellers have until October 17 to submit detailed information about properties that they may wish to divest. Wong said it will be interesting to see what types of buildings come up for sale.
But it will take time for the sales process to play out.
“I get what what [the government is] trying to do: Get employees back into the office and be able to provide total communities for them,” said Wong.
He is interested in learning how high downtown vacancy rate (18%) will affect pricing.
“Tenants definitely have their offers in the market,” said Wong.
Photo: Courtesy of Newmark
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