A tightening Class-A office market and the exodus of federal government departments from the core are pushing landlords of downtown properties to “get creative” with revamping Ottawa’s aging stock of Class-B inventory, Avison Young said Thursday.
The commercial real estate firm said landlords are turning to new design elements such as exposed ceilings as well as upgrading heating, ventilation and air conditioning systems and offering more flexible lease terms and other inducements in an effort to lure tenants to Class-B properties in the central business district.
“As the city of Ottawa gears up for the opening of the first phase of its new light rail transit system, the downtown office market is also undergoing a transition,” the company said in its mid-year office market report released Thursday.
The overall vacancy rate in the core stood at about eight per cent in the second quarter of 2018, down from more than 11 per cent a year earlier, the company said, while average net asking rent in downtown Class-A properties was holding steady at around $22 per square foot.
Avison Young said the widespread trend toward renovations and more attractive lease terms for tenants comes at an “opportune time” for the growing number of software companies looking to set up shop downtown near counterparts such as Shopify.
In the traditional tech hub of Kanata, meanwhile, large blocks of office space are in “very short supply,” the report said, and as a result “covenant tenants are jockeying for position to take advantage of any existing-product discount prices.”
The city’s overall suburban office vacancy rate dipped from 14 per cent in the second quarter of 2017 to about 11 per cent this year, Avison Young said, while average asking net rent remained around $17 per square foot.
The report noted that a pair of prominent commercial landlords, Cominar and Merkburn, are expected to break ground on new office buildings in Kanata by next spring to help address the shortage.
Avison Young also highlighted perhaps the biggest news to hit Ottawa’s commercial real estate sector this year, Amazon’s decision to open a one-million-square-foot distribution facility at the Boundary Road-Highway 417 interchange.
The $200-million project is expected to bring 600 new jobs to the region when it is completed in the fall of 2019. The report said the e-commerce giant’s move will give “positive attention” to the east end’s economy, which “has been short on positive news of late.”
Notable office lease transactions in the first half of 2018
700 Palladium Dr. (Ford Motor Co.): 62,700 square feet
255 Albert St. (Shared Services Canada): 53,100 square feet
200 Laurier Ave. W. (SurveyMonkey): 47,600 square feet
219 Laurier Ave. W. (Public Works and Government Services Canada): 38,200 square feet
1200 St. Laurent Blvd. (Intact Insurance): 33,600 square feet