Demand for office space in the National Capital Region dampened slightly in the second quarter, but local landlords should continue to see “steady” interest in properties thanks to job growth in the public service, tech and other industries, a new report says.
Real estate services firm Colliers International says the overall availability rate of office space in the city – that is, the amount that’s on the leasing market, even if it’s currently occupied by existing tenants – rose eight-tenths of a percentage point to 8.1 per cent in the three-month period from April to June. Asking net rents, meanwhile, fell 4.5 per cent year-over-year to $15.91 per square foot.
Still, the firm remains bullish on the Ottawa market. Noting that federal spending is expected to slow this year after several years of growth, Colliers said the feds are still forecast to create 10,000 jobs over the next five years while sectors such as finance, insurance, real estate and tech are also expected to remain healthy for the foreseeable future.
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“Ottawa’s job market is expected to increase, albeit at a slower rate than in recent years, growing by 8,400 net jobs over the next two years,” the report says.
That robust activity continues to put pressure on Ottawa’s commercial real estate market, Colliers says.
Although the firm predicts the overall availability rate will crest 12 per cent by next fall before dropping slightly, Colliers notes larger properties are still hard to come by and little new inventory is slated to be added in the near future.
“From Kanata to Orleans, contiguous space larger (than) 25,000 square feet is becoming increasingly difficult to find,” the report says.
“Although availability rates have increased in the past quarter in most sub-markets, interest remains as tour levels increase.”
The downtown core remains the tightest market, with an availability rate of 6.1 per cent – up from 4.8 per cent in the first quarter but still well below the mark of eight per cent last fall. The red-hot Kanata market has the next-lowest rate at 7.4 per cent, followed by the west sub-market at 8.5 per cent.
Overall, asking net rents in the region fell 4.5 per cent year-over-year to $15.91 per square foot.
In the downtown core, rents jumped from $18.94 in the second quarter from $18.04 in the first three months of 2019, while rents in Kanata continued to fall, dropping from $13.10 in the first quarter to $12.78.
Ottawa’s industrial market also softened slightly between April and June, with the availability rate rising from 2.2 per cent to 2.8 per cent. Average asking net rents hit $10.56 per square foot in the quarter, up 2.1 per cent year-over-year.
Colliers noted that one million square feet of new supply has been added to the region’s industrial stock – all of which is being occupied by e-commerce giant Amazon at its new east-end warehouse on Boundary Road. The firm said that although “large pockets of space upwards of 40,000 square feet are still available,” that’s cold comfort to many industrial clients that are finding smaller facilities in short supply.
“As the typical Ottawa industrial tenant is usually in the market for space around 10,000 square feet, the demand for new builds is apparent,” Colliers said, adding “it is predicted that more space will become available near Boundary Road and within the Greater Ottawa Valley Area.”
Major transactions in the second quarter included InterRent REIT’s purchase of a 143,000-square-foot office tower at 473 Albert St. from Concentra Financial Services for $21.8 million and Regional Group’s $29.3-million deal to buy a 258,000-square-foot warehouse at 2001 Bantree St. from Canadian Urban Ltd.
