‘Begging for new supply’: Proposed Barrhaven project won’t solve industrial space crunch, broker says

David Sali

November 25, 2024

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The National Capital Region is still playing catchup on industrial real estate construction even as another mega-warehouse is in the works in Barrhaven, a prominent commercial broker says. “Ottawa has been deprived of industrial development for the last 40 years,” Steve Piercey, a vice-president at CBRE’s local office who specializes in leasing industrial properties, told OBJ in a recent interview. “I think we’re just catching up to every other major city.” Piercey was reacting to Montreal-based construction firm Broccolini’s recently filed plans to build a 3.1-million-square-foot fulfilment centre near the intersection of Woodroffe Avenue and Fallowfield Road in east Barrhaven. The proposed facility would be the largest industrial building in Ottawa once it is completed. It would be Broccolini’s third warehouse build in Ottawa, following a 2.8-million-square-foot facility at 222 Citigate Dr. that opened in 2021 and a one-million-square-foot distribution centre on Boundary Road that was completed in 2019. But even with the spate of big-bay builds in recent years, Piercey says Ottawa’s total industrial footprint – which ranges from about 38 million square feet to 46 million square feet, depending on the source – continues to lag other similar-sized Canadian cities. According to CBRE’s third-quarter industrial real estate report, for example, Calgary and Edmonton both have about 160 million square feet of industrial property, while Winnipeg has about 88 million square feet. The lack of inventory is reflected in Ottawa’s vacancy rate, which is the second-lowest in the country at 1.5 per cent, just behind London, Ont., at 1.3 per cent. Meanwhile, leasing costs in the National Capital Region have been climbing steadily over the past several years as supply – particularly for users that need much smaller pockets of space than facilities such as Broccolini’s warehouse provide – remains scarce. Asking net rents in Ottawa have risen from just over $12 a square foot in 2021 to nearly $16 in the third quarter of this year. And with only about half a million square feet of new construction underway, the space crunch won’t ease up any time soon, Piercey said. “We’re having tenants renew in place at (rental) rates they’re not happy with because we cannot find them alternative locations,” he said. “Rates are still increasing, vacancy is getting tighter. “We’re still half of what a typical city with our population size has in terms of industrial square footage. It’s got to catch up at some point, and projects like (Broccolini’s latest proposal) are an indication of what the city really needs. I’m excited to see groups look at Ottawa from this perspective, and I really hope it continues. We have consistent requests for space in Ottawa that we can’t solve today, so groups like this are going out there and having to build it themselves.” Broccolini, whose other industrial facilities in Ottawa are both leased to Amazon, has not publicly stated if it already has tenants lined up to occupy its proposed warehouse. James Beach, the company’s Ottawa-based vice-president of real estate development, was unavailable for comment on Monday.

Retail tenant coming?

However, veteran broker Matt Shackell said it’s highly unlikely the firm would construct a building of that size unless it had someone ready to move in. “They’re a very sophisticated developer,” said Shackell, a vice-president at Lennard Commercial Realty. “I don’t think they’re building 3.1 million square feet on spec.” Retail analyst Bruce Winder said the project has all the makings of a distribution centre for a major e-commerce firm such as Amazon or the like. “That’s a big box for sure,” Winder said. “It could be a number of different players. It’s probably a (retail) heavyweight.” While the new Barrhaven facility would seem to be ideal for an e-commerce titan, Piercey said tenants looking for small-bay industrial units in the 2,000- to 5,000-square-foot range would be “hard-pressed to find more than a handful of options” in the National Capital Region. “It’s too expensive to build (new projects), and that will continue to be a pressure point for small businesses in the city. I don’t see any sort of relief in sight for small-bay industrial occupancy in the future.” Shackell agrees it’s “very challenging” for tenants seeking small-bay properties in the 5,000-square-foot range to find quality space at an affordable price in Ottawa. “A lot of (available) units aren’t viable because they don’t have the loading, they don’t have the parking, they don’t have the clear height, they don’t have the visibility,” he explained. At the same time, Shackell said he’s sensing a bit of a slowdown in demand for bigger units. He pointed to recently constructed developments such as Avenue 31’s National Capital Business Park and Rosefellow’s two-building project on Huntmar Drive in Kanata, where large chunks of space are still available. “We’re pushing probably half a million square feet of brand-new product that’s never been leased, and it’s already built and ready to go,” he said. In addition, the veteran broker noted that other marquee projects in Ottawa’s construction pipeline have been put on hold, including Toronto-based CanFirst Capital Management’s plan to build up to 900,000 square feet of warehouse space in Barrhaven. “When you start to hear projects are getting shelved, well, there’s a reason for that,” he said. CanFirst executives did not respond to requests for comment on Monday. However, Piercey said he believes CanFirst’s decision to pause its development had more to do with macroeconomic headwinds and the emergence of other new builds – such as Rosefellow’s project in Kanata and Manulife’s two-building, 200,000-square-foot project on Bantree Street in the city’s south end – at around the same time. “If those buildings were staggered, our city could certainly absorb them,” he argued. “One hundred per cent, we need that space.” Piercey said he doesn’t think any fresh inventory will remain vacant much longer. “We’re two to three good-sized deals away from having really no space for mid- to large-bay users in Ottawa, because there’s nothing (new) on the horizon,” he explained. “If you look at the development pipeline, there’s nothing being delivered within the next 12 months. We are going to do those couple of deals in the next 12 months, and at that point we’ll be where we were four years ago, begging for new supply to be developed.”