Dream Office REIT is selling its 11-storey 720 Bay Street office tower in downtown Toronto for $135 million, the trust announced late Monday.

The announcement does not identify the buyer. It states the transaction is set to close later in Q1 of 2023, subject to customary closing conditions.

It also states the purchase price is higher than the trust’s carrying value for the property as of Sept. 30.

720 Bay Street, which is also known as the McMurtry-Scott Building in honour of two former Ontario attorneys general, is a class-B office property with a total of 14 floors (including maintenance levels, etc.) and 247,700 square feet of space. Typical floor plates average 21,404 square feet.

720 Bay Street fully occupied

It is fully occupied, with the sole tenant being the headquarters of the Ontario Ministry of the Attorney General. It is within walking distance of the provincial courts as well as Queen’s Park, the provincial government legislature building in downtown Toronto.

In a listing of its portfolio in September 2022, Dream reported just over three years remained on the lease.

Built in 1989, the building has a BOMA Best Gold certification.

Dream Office says the property is not mortgaged, and is currently pledged as security for its $375 million revolving credit facility. Proceeds from the sale will be used to repay debt and repurchase REIT A units under its normal course issuer bid program.

Dream touts its location as one of the key selling points for the building and for attracting tenants. It is in close proximity to numerous food and beverage outlets, as well as the Toronto Eaton Centre, hotels and other retailers.

It’s also between the two north-south branches of the Yonge subway line, and just a block from Toronto’s so-called Hospital Row, which includes Toronto General Hospital, Sick Kid’s Hospital and other major medical facilities.

Toronto's office vacancy rate jumps

The transaction comes at a time of uncertainty for downtown office owners as the ongoing fallout from the COVID-19 pandemic and work-from-home schemes continues.

In the latest Q4 figures provided by CBRE, which were released Tuesday morning, Toronto’s overall office vacancy rate jumped to 16.2 per cent, while the downtown rate increased from just under 12 per cent in Q3 to 13.6 per cent.

Net absorption during the quarter was -1.9 million square feet in a market of just over 172 million square feet. CBRE’s data shows about 27.9 million square feet of space available citywide, broken down as 21.3 million square feet of direct space and 6.5 million square feet of sublet space.

The report also notes a continued flight to quality, with class-A space at 16.2 per cent vacancy citywide, but 12 per cent in the downtown. 

Toronto also has about 5.8 million square feet of office space under construction, the vast majority of it (5.2 million square feet) in the downtown.

About Dream Office REIT

Dream Office REIT is an unincorporated, open-ended real estate investment trust which has among its holdings with over 3.5 million square feet owned and managed in Toronto.

The REIT also owns properties in several other Canadian cities and in Kansas in the U.S., for a total of about 5.3 million square feet. 

It has two projects under development in Toronto.