The Ontario government is looking to purchase office buildings in downtown Toronto to revitalize the economy, which has been sluggish since the pandemic. The government is targeting office buildings between 60,000 and 180,000 square feet and is looking for buildings within a 10-minute walk from a subway station or a 10-minute drive from a major highway.
Infrastructure Ontario, which manages the provincial government’s real estate assets, recently finalized its purchase plan through a contract with a commercial real estate company. Under the provincial government’s mandatory requirements, the buildings must have a market value of less than $500 per square foot.
Based on that standard, the provincial government could pay up to $100 million for a 60,000-square-foot building. “The plan is intended to increase efficiency in the public sector and reduce operating costs,” said Jeff Giffen, a spokesman for the provincial government. “No specific purchase decisions have been made yet, and the plan is in the early stages.” However, he added that after the purchase, the provincial government plans to use all the office space in the building for provincial agencies.
CoStar, a commercial real estate information provider, analysed that “this move by the Ontario government could invigorate the sluggish Toronto office market,” and “the government’s real estate purchase would be a positive signal for the long-term economic recovery of downtown Toronto.”
The average market value of Toronto office buildings is currently around $442 per square foot, which seems to meet the conditions for the purchase. However, CoStar added that “the recent spread of hybrid (work-from-home and office-based) work arrangements, high interest rates, and economic uncertainty have significantly reduced office building transactions, making it difficult to accurately estimate market prices.”
Investment firm Colliers Canada said that “the government is in a better position to raise funds than the private sector, and now is the right time to purchase office buildings.” It predicted that “in a sluggish commercial real estate market, the government’s purchase would have a positive impact on improving vacancy rates and revitalizing the local economy.”
Meanwhile, the provincial government plans to use more than 60 percent of the purchased buildings for public sector purposes within five years, and the remaining 40 percent within 10 years. The property owners who have properties for sale must submit information such as floor plans, amenities, and repair needs to Jones Lang LaSalle (JLL) by October 17.
JLL will develop a property purchase proposal, conduct property research, and negotiate the deal under a contract with the provincial government. The contract is for one year, with an option to extend for another year if necessary. It remains to be seen how this provincial government purchase plan will affect the Toronto office market.