Construction industry faces ‘a lot of challenges’ even with rate cuts, Ottawa developer says

David Sali

December 12, 2024

Already an Insider? Log in

Get Instant Access to This Article

Become an Ottawa Business Journal Insider and get immediate access to all of our Insider-only content and much more.

Learn More and Become an Insider

The developer behind a proposed new mixed-use project near the Bayview LRT station says his firm is “staying on the sidelines” despite having thousands of housing units in its pipeline because the market remains too volatile for many builders to put shovels in the ground. Manor Park Management president Lalit Aggarwal’s company recently filed a plan to construct two buildings with more than 100 rental suites at the corner of Somerset Street West and Bayswater Avenue in Hintonburg. The proposal is making its way through the municipal approval process, but Aggarwal told OBJ this week he’s in no hurry to start construction. “There’s no timeline,” he said in an interview on Thursday. “It’s more getting the approvals and then seeing what the market is like. Then we’ll make a decision as to whether to break ground or not.” At first glance, the project appears to be well-positioned for success. It’s just a short walk from the intersection of the Confederation and Trillium light-rail lines and one LRT stop west of LeBreton Flats, where a new NHL arena could one day be the centrepiece of a complete redevelopment of the 72-acre former industrial site. But Aggarwal notes a new rink at LeBreton is probably at least five to seven years from becoming a reality, assuming the Senators and the National Capital Commission reach a deal for the land. While he agrees the project would be a game-changer for the neighbourhood, it’s not a foregone conclusion. “It’s pretty exciting,” he said of the thought of the Senators moving downtown and attracting new amenities to the area. “It’s just how long is it going to take for all of this to happen?” Aggarwal is very familiar with the neighbourhood – Manor Park Management already owns a 17-storey, 192-unit apartment highrise next door to its proposed 16-storey tower at 50 Bayswater Ave. That building is fully occupied, and Aggarwal believes the proposed new units eventually would be as well. But he says he’s not convinced now is the time to build. The Ottawa market is still absorbing the new inventory that resulted from a surge in apartment construction a couple of years ago, he said, noting rents “have peaked and are probably trending down a little bit.” That’s giving him pause. “Construction costs have stopped going up, but they’re not exactly coming down,” Aggarwal said. “There’s actually a lot of supply in the market right now. You kind of want that supply to clear and see what those rents are, and then make a business decision.” While construction costs have stabilized, a number of other issues are influencing his decision to hold off on any new builds. Aggarwal says Manor Park Management has projects containing a total of about 12,000 housing units in various stages of development. But the company hasn’t launched any new construction since it completed a 138-unit rental apartment building in Kanata six months ago. “This is the first time in probably 12 or 13 years that we don’t have an active construction project,” he said. Like many developers, Aggarwal explained, Manor Park felt the impact of rising interest rates and soaring inflation, which sent a chill through the industry a couple of years ago. “Two summers ago, when inflation was pretty strong and rates were increasing, we had to pump the brakes on new construction because it didn't make sense,” he said. “And we’re not the only people. I see it across the board.” It takes a while to get the construction pipeline flowing again after the taps have been shut off, Aggarwal said. And while he described the Bank of Canada’s recent series of rate cuts as “helpful,” he noted that interest rates are far from the only factor in a developer’s decision to build or stand pat. “It’s one of a dozen variables that goes into the equation,” Aggarwal explained. “A rate cut certainly helps, but if all of a sudden everyone is developing and the cost of lumber goes through the roof, it almost negates it.” U.S. president-elect Donald Trump’s recent tariff threats have also thrown a wrench into the works, he added. “We’re all waiting to see what the impact of new tariffs from the U.S. potentially means. Does that mean everything is more expensive? Let’s say our dollar softens a bit, and you’re having to buy HVAC equipment from the U.S. … in U.S. dollars and our dollar is not in a good spot.” Aggarwal also argues the industry is “overregulated,” saying government red tape drives up costs and results in unnecessary delays. “It’s really stifling the industry,” he said. “It’s not about a certain government – it’s all levels of government, it’s all parties. We talk about a housing crisis, but as Canadians, we’re actually not serious about it. We like talking about it, but that’s all we do about it.” As for when Manor Park will start putting shovels in the ground again, Aggarwal isn’t placing any bets. The company has proposed rental projects in Vanier and Navan that are now at the site-plan approval stage, but when they’ll actually get off the ground remains to be seen. “We’re doing everything in the process, but still probably on the sidelines a bit,” he said. “We’re going to get there, but nothing is imminent, to be honest. There’s just a lot of uncertainty, a lot of challenges.”