An Amazon.com Inc. office building in Vancouver, along with a neighbouring tower, are up for sale by two of Canada’s largest pension funds, according to people familiar with the sales process.

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Oxford Properties, the real estate arm of the pension fund representing Ontario’s municipal workers, and the Canada Pension Plan Investment Board (CPPIB) expect to get about $350 million for the buildings at 402 Dunsmuir St. and 401 West Georgia St., according to the people, who asked not to be named because the discussions are private.

After last year’s sharp rise in borrowing costs froze the market for Canadian office buildings, the sale of the two Vancouver properties would be the first significant office transaction in the country since last April, when a tower in downtown Toronto traded hands for about $380 million, according to data from CBRE Group Inc. that analyzed deals of more than $200 million.

Office owners have been grappling with even higher borrowing costs since that sale last year, as well as changing appetite from tenants given the rise in remote work and layoffs. Oxford and CPPIB’s potential sale of the two Vancouver buildings will be the first clue as to what such office towers are worth in the new environment.

The two pension funds are seeking to manage their exposure to Vancouver’s office market and have opted to sell more mature projects given that they are nearing completion on another new office tower with about 51,100 square metres of space, according to two people familiar with the matter. Both buildings that are being put up for sale are fully leased, with the one on Dunsmuir completed in 2020.

Spokespeople for CPPIB and Oxford declined to comment.

Vancouver’s office market has historically been tighter than other cities in North America, but the rise in remote work has caused its vacancy rate to climb, hitting 8.4 per cent in the first three months of the year, according to CBRE. Amazon has mandated that its employees be in the office three days per week.

In the U.S., a report by research firm Capital Economics predicted the switch to remote or hybrid work will cause office building values in that country to plunge 35 per cent from the peak by the end of 2025, and take at least another 15 years to recover after that.

— with assistance from Paula Sambo

Bloomberg.com