Ontario government looking to buy office buildings in downtown Toronto

The Ontario government is looking to buy an unspecified number of office buildings in Toronto as activity in the city’s downtown continues to lag below prepandemic levels.

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, documents say.

The government will consider buildings with a “current estimated market value” of less than $500 per square foot, according to an expression of interest circulated by a commercial real estate company contracted by Infrastructure Ontario. This suggests the province would pay as much as $100-million for a 200,000-square-foot property.

Infrastructure Ontario, which manages the government’s real estate portfolio, did not answer questions about the plan, including how many buildings the province wants and what it would use them for.

“The province aims to improve public sector efficiency and reduce operational costs,” Jeff Giffen, a spokesman for Infrastructure Ontario, said in an e-mail. “This process is in its early stages and no decisions about purchasing have been made.”

The government’s plans signal its commitment to Toronto and would provide a boost to the sagging office market, said Carl Gomez, chief economist and head of market analytics at CoStar, a commercial real estate information provider.

“Obviously, there’s a conceptual element to this – purchasing office buildings to keep the office market alive,” he said. “I think that’s the optics.”

Mr. Gomez said there is “waning interest” in office buildings, the result of high interest rates, hybrid work and an uncertain economy. There have been relatively few transactions, which makes determining prices challenging, he said, adding that buyers expect deals while sellers are reluctant to offer discounts.

The current estimated market value for office buildings in Toronto is $442 per square foot, according to CoStar. However, actual prices vary considerably depending on factors such as location and building type. The office vacancy rate is just over 10 per cent, Mr. Gomez said.

There is “quite a bit of opportunity” in the city’s office market, said Adam Jacobs, head of research for commercial real estate firm Colliers Canada. He noted that the government has access to money, unlike private buyers who face difficulty securing financing because many lenders are not interested in office deals.

“If you’re a government and you have access to capital, I think it makes sense,” he said. “It’s a good time to buy in that sense.”

In downtown Toronto, the percentage of employees working in the office averaged 61 per cent of prepandemic occupancy levels over the past three months, according to Colliers. (Colliers used data from Environics Analytics, which uses anonymized cellphone data to track movement to and from work.)

The province wants to eventually occupy all the office space in any buildings it purchases. The posting says the government is looking for buildings with “a viable opportunity” for at least 60 per cent of space to be available for its use within five years and fully vacated by tenants within 10 years.

The posting says building owners interested in selling should submit detailed information, including floorplans, amenities and needed repairs, to Jones Lang LaSalle Real Estate Services (JLL) by Oct. 17.

Infrastructure Ontario awarded JLL a contract for an undisclosed value in July “to develop an Expression of Interest and engage market interest on behalf of the Government of Ontario,” according to documents posted on MERX, a government procurement website. The contract was listed for one year, with an option to extend it for another year.