Warren Wilkinson, Colliers’ senior managing director in Ottawa, said this week the firm has already brokered 23 office lease transactions so far in 2024 and expects to top 80 before the year is out.
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One of Ottawa’s largest commercial real estate brokerages says it’s on pace to close its highest number of office leasing deals since before the pandemic – a trend that suggests things could be turning around for the city’s beleaguered office market, the firm’s top local executive says.
Warren Wilkinson, Colliers’ senior managing director in Ottawa, said this week the firm has already brokered 23 office lease transactions so far in 2024 and expects to top 80 before the year is out.
That would surpass the 69 deals that Colliers helped Ottawa clients finalize in 2019, the year before the COVID-19 crisis upended the global office market, and would represent an increase of more than 30 per cent over last year’s total of 61 transactions.
“We’re seeing activity in the office sector back to our levels of 2019,” Wilkinson told an audience of local commercial real estate insiders during the company’s annual industry lookahead Tuesday at Bayview Yards. “I’m really excited. Vacancy rates are down and asking rents are up. That’s great news.”
Colliers’ briefing on the state of Ottawa’s commercial real estate sector followed a first quarter that included some encouraging signals for the industry.
The city’s overall office vacancy rate dipped to 12 per cent in the first three months of 2024, down from 12.2 per cent at the end of last year, the company said, while average asking net rents rose 1.5 per cent year-over-year to $17.50 a square foot.
Wilkinson noted it marked the third consecutive quarter that the office vacancy rate has declined following a prolonged commercial real estate slump fuelled by the shift to remote and hybrid work during the COVID-19 crisis.
Kanata has been the “big winner” in the return to the office, he added, as the tech hub’s vacancy rate dropped three percentage points year-over-year to 13.2 per cent.
Still, there are signs the industry’s recovery is far from complete.
Sublease space is on the rise in the downtown core, for example, suggesting some tenants are still uncertain about the need for pre-COVID levels of real estate in the age of hybrid work.
Wilkinson said some private-sector companies might be taking their cue from the federal government, which is looking to offload a significant chunk of its aging office properties in the National Capital Region as it embraces a policy of allowing employees to work from home two or three days a week.
“If the federal government is not taking their return-to-(office) policies as seriously as they should, perhaps some of the private-sector (tenants) aren’t either,” he said.
Colliers senior vice-president Lindsay Hockey echoed that view.
Hockey said the feds’ “slowness to come up with a (return-to-work) plan and follow through with it” has left companies that provide goods and services to the government in limbo.
“A lot of them are still waiting for ‘it’ to happen, whatever ‘it’ is,” Hockey said during a roundtable discussion on the local office and industrial real estate markets. “Their attitude is, if we’re going to continue to meet with (government clients) on Teams and Zoom, we don’t need a large footprint downtown.”
However, Hockey added he expects top-shelf sublease space in class-A downtown office towers to eventually get snapped up as employers continue to push for more in-person interactions between employees.
“I think a lot of it depends on the type of space and the condition of space,” he said.
Wilkinson also noted the downtown vacancy rate has dropped in part due to more than 400,000 square feet of inventory being removed from the market and slated for conversion for residential units since the start of last year.
In addition, while net asking rents have risen from $15.86 in 2019 to $17.50 in the first quarter of 2024, Colliers’ research shows that net effective rents – the actual rate tenants pay after commission fees and incentives such as fit-up subsidies have been deducted – have fallen 4.4 per cent in the same period, to $15.94 from $16.07.
“Landlords are protecting their face rates and offering deeper incentives,” Wilkinson said, pointing to a spike in inducements such as free rent and tenant renovation allowances.
In response to an audience question about whether the downtown office sector has bottomed out, Colliers associate vice-president Jessica Whiting said she believes the market has shifted into “recovery mode” as more tenants solidify their long-term real estate plans and managers of major properties such as Constitution Square and World Exchange Plaza upgrade their facilities.
“I think landlords stepped up to the plate when they needed to,” Whiting said. “We do have big vacancies in the (class-)C and B buildings, but A is getting better.”
