Dream Office REIT (D-UN-T) has confirmed it has an agreement to sell its 438 University Ave., office tower in the heart of downtown Toronto for $105.6 million as office transaction activity in the city seems to be on the upswing.

The transaction is at least the sixth significant office property to trade in the past few months, after an extended period of relative inactivity in the sector due to uncertainty about the economy and future work trends.

The 20-storey class-A 438 University tower is directly connected to the St. Patrick station on the Toronto subway system. It contains 322,835 square feet of space and was 93 per cent occupied when brokers TD Cornerstone Commercial Realty and CBRE listed the building for sale early in 2024.

To facilitate the transaction, Dream said in its announcement late Friday the trust secured agreements to relocate approximately 17,000 square feet of tenants from the building to vacant space in Dream’s other downtown Toronto properties.

Dream did not identify the buyer, but in a published report, Greenstreet called it a government agency. The largest tenant at 438 University Ave. is Infrastructure Ontario, which is leasing 59 per cent of the space. 

The transaction does remain subject to customary closing conditions, and is scheduled to close by the end of Q1.

Dream shifts some tenants to other buildings

Dream Office REIT will continue to manage the property, having secured an agreement to continue with these services for the next three years.

Moving several existing tenants to other Dream properties is expected to increase operating income in those buildings by over $1 million annually, the REIT states. It will also decrease vacant space in the buildings.

Finally, Dream also received a relocation right to move one of the last tenants at 250 Dundas St. W., so the building is fully unencumbered. This will reduce costs significantly in Dream’s development pro forma, it states, improving the potential value of the purpose-built rental development site.

“We believe the transaction is attractive to the trust as we estimate that these combined incremental benefits represent a value of over $20 million or $62 per square foot to the trust,” Dream’s announcement states.

Dream intends to use the proceeds to repay a $68.8 million property mortgage on 438 University, and to pay down its corporate credit facility.

Toronto-based Dream Office REIT is a significant office landlord in downtown Toronto with over 3.5 million square feet owned and managed.

Recent office sales in the GTA

The 438 University sale is the latest in a series of transactions involving larger Toronto office buildings. There were five such trades during Q4 of 2024, including the $161.3-million sale of 2 Queen St., in Toronto by co-owners AIMCo and CPP Investments to Brookfield Properties.

Each of the other transactions has been to a private buyer, or a company that will hold the property as an owner/occupier.

That 477,000-square-foot tower was the most significant trade, but far from the only one. According to JLL data in its Q4 2024 GTA office report, other properties which were sold during the quarter included:

• 522 University Ave., a 210,000-square-foot tower sold by Industrial Alliance to the University Health Network for $79.3 million. It is to become part of the downtown hospital's network of outpatient, research and office facilities;
• 7030 Woodbine Ave., Markham, a 359,943-square-foot property sold by Wafra to Smart Investment Ltd., for $52 million;
• 2000 Argentia Rd., Mississauga, a 222,285-square-foot office campus sold by Quadreal to Aaxel Insurance for $40.1 million; and
• 55 Town Centre Ct., a 222,285-square-foot asset sold by the Ontario Superior Court of Justice to a private buyer for $17.3 million.