Morguard Corp. (TSX: MRC) on Wednesday announced its acquisition of a 20-per-cent stake in downtown Vancouver’s Telus Garden, another example of the increase in office transaction volume as work-from-home policies recede and interest rates subside.
In an Oct. 9 news release, Morguard said it has acquired a one-fifth stake in the office tower at 510 W. Georgia St. and 541 Robson St., which is home to Telus Corp. (TSX: T) and has notable tenants including Amazon.com Inc. (Nasdaq: AMZN).
The vendor and purchase price were not disclosed.
Built in 2016, the 24-storey office building spans 557,255 square feet and is known for its sustainability and design features, which include LEED Platinum certification and a glass canopy along Georgia Street featuring curved wooden ribs.
Morguard is a North American real estate and property management company. Its office portfolio includes 11.7 million square feet of leasable area valued at $2.6 billion as of June 30, 2024, according to the company.
The deal illustrates a strong recovery in the Vancouver office market following the COVID-19 pandemic, when work-from-home and hybrid policies became commonplace.
“A concern, watching return-to-office and how that was received, I think made it a bit questionable whether people would … continue to invest in office assets,” said Shawna Rogowski, senior manager of market intelligence with real estate advisor Avison Young (Canada) Inc.
“Looking at these past six months, we had almost 10 times the amount of volume in just the first half of the year compared to the second half of 2022.”
According to an Oct. 10 report from Avison Young, office investment volume totalled almost $685 million in the first half of 2024, compared to just $69 million in the second half of 2022, reaching its highest level in three years. The firm tracks deals in Metro Vancouver above the $5-million mark.
“We’ve obviously had a quiet few years when it comes to office investment,” said Rogowski. “To see almost 10 times the all-time low is very encouraging, especially when we’ve seen the vacancy rate hit a high.”
Vancouver’s office vacancy rate went from a low of 4.4 per cent in the second quarter of 2019 to 10.4 per cent in during the same period of 2024, which is high for the local market but still one of the lowest vacancy rates in North America.
“Even though it’s a shock [for some people to see a] double-digit vacancy rate, the fact that we’re seeing that office investment goes to show that we realize office space is still in need, still necessary and not going anywhere,” said Rogowski.
“There are also good deals to be had. It’s a good opportunity to kind of look at some of these assets and see if some of these landlords want to get out of office space, creating good opportunities for those interested to buy. Office space is not going to become obsolete anytime soon.”
One recent, noteworthy deal was the sale of two downtown towers by Oxford Properties Group Inc. and Canada Pension Plan Investment Board to Germany’s Deka-Gruppe for about $300 million, or $721 per square foot.
“The whole market was watching while that listing was up,” said Rogowski, adding it set a benchmark for what office deals might look like this year.
“If we’re looking at major Class A office buildings, we haven’t seen anything trade in the last couple of years before that. It was the first major transaction in a while for big stuff.”
Now, Morguard’s partial acquisition of Telus Garden reaffirms the ongoing recovery of office investment deals, as employers fine-tune their space requirements and iron out their work location policies.
Deal volume will only accelerate further as interest rates trend downward, allowing purchasers to finance their acquisitions at favourable terms.
“The partial acquisition of Telus Garden demonstrates Morguard's commitment to and confidence in the office asset class,” said the company’s Wednesday release.
