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To our Investors and Partners,
We are pleased to share our Q1 2025 financial reports. This quarter reflects a market navigating complexity and crosswinds but also one where strategic discipline and operational excellence matter more than ever.
Market Commentary: Confidence Tempered
Q1 2025 began with signs of stabilization: increased leasing activity, improving sentiment, and a growing transactions pipeline. Yet that momentum has moderated. Rate cuts, once a market catalyst, now take a back seat to tariff negotiations, political risk, and mounting regulatory uncertainty. These external factors have slowed leasing and sales processes, introduced renewed hesitancy, and prompted greater discipline.
This cautious tone is consistent across business leaders, lenders and investors. According to CBRE, while most lenders feel positive about real estate, they are weighing tariffs and global volatility more heavily in their activity forecasts. Tariff impacts could restrict new supply by driving up construction costs, further widening the gap between unfinished versus move-in-ready office space.
Office Market Trends: Mixed Signals, Selective Activity
Across Canada, Q1 marked the first decline in downtown office vacancy since Q1 2020. National sublet vacancy is now down over 20% year-over-year, its lowest level since Q3 2020. The GTA continues to exhibit resilience. While the region recorded modest negative net absorption, leasing activity remained steady, with occupiers prioritizing well-managed, amenity-rich, environmentally sustainable buildings in transit-oriented locations. The overall GTA office vacancy stands at ~17%, with GTA West reporting closer to ~15% vacancy and slightly positive absorption. Rents remain firm, with face rates holding in the mid-twenty-dollar range (high teens in the suburbs).
At Crown, leasing momentum continued across our assets. That said, tenants are exercising more caution. Decisions are slower and approvals more scrutinized. Our strategy of offering flexible, professionally managed, and ready-to-occupy office space is proving resilient in this environment. Construction costs are moderating but have still increased significantly since pre-pandemic days, and the ability to deliver turnkey space with known timing and pricing is more attractive to tenants and a market differentiator. This is especially true in suburban markets, where Crown’s assets have benefitted from a flight to quality and flight to professionalism. With no new construction anticipated (activity is at its lowest since 2004) and the re-zoning of office assets commencing, thereby reducing the office inventory, existing high-performing assets are expected to absorb much of the tenant demand.
Highlights of the Quarter:
Looking Ahead: Deployment Opportunities with Selective Dispositions
While the current backdrop will likely delay near-term asset sales, it is also creating a window to deploy capital with selectivity and discipline. Afterall, this is the type of market dislocation that historically yields the most attractive entry points and out-sized returns.
Crown continues with strategic dispositions on behalf of CR IV LP, where market depth aligns with asset quality. Meanwhile, we are actively seeking mispriced opportunities on behalf of CR V LP - where the discount reflects macro-level risk, not asset-level weakness.
We believe the Crown advantage lies in our ability to source and understand value that is overlooked by others. Through a fully integrated platform, we can take advantage of real-time leasing, construction, and capital markets insight. With the benefit of committed capital in our fund, CR V LP, we are positioned to lean in while others pause - and to make strategic acquisitions that should define the next cycle.
We thank you for your continued trust and partnership and welcome the opportunity to discuss our outlook and pipeline for 2025.
