Space-hungry tenants snapped up a net total of more than 200,000 square feet of real estate in Ottawa’s red-hot office market in the first quarter of 2019, driving the local vacancy rate down half a percentage point to 7.5 per cent, CBRE said Monday.
Despite an influx of demand that’s pushed vacancy rates to a 10-year low, no new inventory has been added the Ottawa office market in two years, the real estate firm noted in its quarterly Canadian office and industrial space report. CBRE says the space crunch is limiting the options for local companies looking to expand their operations or change locations.
The office vacancy rate in the downtown core actually rose slightly to 7.7 per cent, up from 7.3 per cent in the previous quarter. But that uptick was more than offset by a 1.2 per cent drop in office vacancies in the suburbs, where the rate fell to 7.3 per cent.
Space is at even more of a premium in the coveted class-A market. The vacancy rate in that segment sat at just 4.7 per cent in the core and 5.7 per cent overall in the first quarter, according to CBRE.
But there was some good news for renters: After rising for six consecutive quarters, average class-A net rental rates dropped 63 cents in the first three months of the year to $23.19.
The pending arrival of light rail is likely to put even more pressure on the office rental market, CBRE added.
“As the LRT’s phase one completion date of Q3 2019 approaches, owners and landlords continue to invest significant capital in those properties in close proximity to the stations,” the report said. “Demand for these spaces will remain high as transit accessibility remains an important factor for prospective tenants.”
Meanwhile, the vacancy rate for commercial space also declined by half a percentage point in the first quarter to a record low of 2.2 per cent, CBRE said. After increasing by 5.7 per cent in 2018, average net rents rose slightly to $10.12 a square foot in the first three months of this year.
Noting the only new construction currently under way in Ottawa is Broccolini’s one-million-square-foot east-end warehouse facility that’s been fully leased to Amazon, CBRE advised that “now would be an ideal time for speculative or design-built projects to commence.”
Most of the net absorption of 104,000 square feet occurred in the city’s south end, according to the report, with a “variety of users” driving demand, including building materials and logistics companies.
“Users seeking large warehouse configurations may encounter difficulties,” CBRE added, noting almost 60 per cent of available commercial properties have a footprint of 5,000 square feet or less.