Federal government consolidation, employment driving trends in Ottawa office market: reports

ottawa

With the dust settled on the 2019 federal election, commercial real estate watchers are keeping a close eye on how Public Services and Procurement Canada will shape Ottawa’s office market in 2020.

Two of the city’s largest brokerage firms released separate market outlook reports this week that highlighted the federal government’s central role in the city’s commercial real estate market.

On the one hand, Colliers said it expects the federal government’s push towards consolidating office space to drive up the availability rate in the capital.

However, CBRE said growing public-sector employment – combined with a thriving tech sector – will fuel leasing office leasing activity in 2020.

The two firms painted slightly different pictures of the citywide market. CBRE’s statistics showed a tightening office market with vacancy rates dropping to 6.3 per cent at the end of 2019, down from seven per cent in the third quarter.

Colliers, meanwhile, reported a rising availability rate – which includes space being marketed, but not yet empty – that reached 8.7 per cent.

Looking ahead, both firms say there are several submarkets to watch.

CBRE said growing interest in Kanata and the Central Business District is driving leasing activity west. Meanwhile, Colliers said that the east might be building a new reputation for the businesses looking for office space.

“This could indicate a change in the negative perceptions that have kept tenants away from the East in the past,” Colliers wrote in its report.

Industrial tenants look to sublease

On the industrial side of Ottawa, CBRE reported an increase in availability rate to 2.8 per cent heading into 2020, up 50 basis points from the same point a year ago. Colliers reported a steady availability rate of 2.1 per cent.

CBRE pointed to an influx of sublet space available in the industrial sector, which the firm said could either be a reaction to the tightness of the market or rising rental rates.

CBRE also reported that 2020 should see upwards of 70,000 square feet of space added to the industrial market with fully leased spaces such as 3020 Hawthorne Rd. and 899 Ages Dr. set to come online this year.

CBRE and Colliers both reported average rental rates between $10-$11 per square foot in Ottawa’s industrial market, with both forecasting an increase to prices in 2020.

Colliers said that tight industrial availability rates are leaving tenants trapped in their current spaces. The lack of mobility puts landlords in the driver’s seat, where they’re able to push for longer-term leases with higher rents.

Rising rental rates could soon push tenants to a point where they’re willing to pay the higher price to a developer for a new build, Colliers added. But until then, appetite for speculative and pre-leased builds remains rare in the Ottawa industrial market.