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Downtown Vancouver office tower sales establish new benchmark

Deal signals a new era of international investment
Germany's Deka Immobilien purchased 402 Dunsmuir together with 401 West Georgia in a deal worth in the range of $300 million.

A deal that’s poised to be Vancouver's largest office transaction of the year has closed for an estimated $300 million.

Germany’s Deka Immobilien Investment GmbH was the successful purchaser of 401 West Georgia Street and 402 Dunsmuir Street, previously owned in a joint venture by Oxford Properties Group and Canada Pension Plan Investment Board (CPPIB). Together, the two properties have 415,000 square feet of leaseable space.

The assets hit the market last summer and Bloomberg broke news of the sale in February but a handful of outstanding issues delayed formal announcement of the closing till this week.

“This transaction marks the beginning of the next cycle of office investment in Canada,” CBRE Canada president and CEO Jon Ramscar said in a May 22 statement. “It highlights the resilience of the Vancouver office market and provides a market-leading data point.”

CBRE Canada vice-chair Tony Quattrin, who co-directs CBRE’s Vancouver-based National Investment Team which brokered the deal, said the opportunity attracted “considerable interest from dozens of groups, including several international capital groups.”

“There was a number of bids for the assets and all were international. There were no domestic bids,” said Quattrin said earlier this year.

While bound by confidentiality agreements, Quattrin acknowledged that initial reports of the deal’s value were “not very far off.”

The sale was the culmination of a competitive bid process following a global marketing campaign.

Deka’s investment signals the return of international interest to Vancouver’s real estate market, CBRE said in a statement announcing the deal.

“This was definitely a landmark transaction conducted in one of the most uncertain economic environments in recent history, and represents renewed investor interest in our office market,” Quattrin said in a statement.

He told Western Investor that the deal will help to give investors across North America a read on the value of office properties. Vancouver is one of the most stable office markets on the continent, and the deal establishes a landmark against which other properties can take their measure.

“Interest rates had risen and cap rates and decompressed and everyone as trying to find out where the market for office was,” he said.

“It has relative merit,” he said. “In a stabilized market it’s a good benchmark, and in markets that are oversupplied – and vastly oversupplied like Calgary, it’s obviously less directly relevant, but at least it defines a benchmark on which to calculate your spread.”

According to MSCI Real Capital Analytics, foreign investors accounted for 32.5 per cent of Canada’s real estate buyer composition in 2023.

Deka’s investment signals that this is likely to increase in 2023, though investors are still looking for signals that the coast is clear to move ahead.

“Capital has been patient for a long time, and I sense they would like to get back to investing. They just want some direction,” Quattrin said. “If they see things turning in a way that are favourable to positive economic outcomes, I think you’ll see investors come back.”

While no other downtown Vancouver office towers are currently on the market, Cadillac Fairview has offered two of its Calgary properties for sale: Encor Place, at 645 7 Avenue SW and 635 8th Avenue SW.