Fringe core, class-B office markets take hit as sublease space surges, Colliers says

Downtown offices
Downtown offices

Ottawa’s office availability rate rose to its highest level in three years last quarter thanks largely to high-profile tenants such as Shopify putting space back on the market as they shift to a remote-first work model, Colliers International said in a report this week.

The real estate services firm said the city’s office availability rate – which includes space being marketed for lease, even if it’s currently occupied by existing tenants – rose to 9.9 per cent in the three-month period from July to September. 

That’s up nearly two percentage points from a year earlier, a spike Colliers attributed to a fourfold year-over-year increase in sublease space. 

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With a growing number of tenants choosing to ditch office space and work from home during the pandemic, more than 400,000 square feet of space is now available for sublease in Ottawa – nearly half of it coming on the market early last month when e-commerce giant Shopify vacated its 170,000-square-foot headquarters on Elgin Street.

The average asking price per square foot of office space in the quarter rose 3.5 per cent year-over-year to $16.74. But Colliers suggested tenants could start to find better deals down the road if much of the sublease space that recently flooded the market remains empty over the longer term.

“The increased level of availability is not initially detrimental to the owner as sublease space is still being paid for by a variety of occupiers; yet occupiers see the increase in available space as an opportunity to obtain favourable rates,” the report said. 

Colliers said the fringe core submarket was hit particularly hard in the third quarter, with areas just outside downtown showing a net loss of more than 100,000 square feet of occupied space. The availability rate in the fringe core now stands at 13.8 per cent, the second-highest mark in the city behind the east end’s rate of 15.3 per cent.

Tenants’ urge to shed real estate also took a big toll on the class-B market, which saw its sublease inventory jump more than 1,000 per cent compared with a year earlier.

“Both (the fringe core and class-B buildings) offer a middle ground in terms of costs and benefit, which is quickly outpaced as affordable class-A space becomes available for sublease in the CBD,” Colliers explained.

Trinity Centre project a go

Despite the market downturn, the report pointed out that Trinity Development Group is proceeding with the development of its Trinity Centre project near Bayview Station. The three-tower mixed-use development will add more than 500,000 square feet of office space to the fringe core just a few kilometres west of downtown and will “feature aspects of pandemic planning,” Colliers said without elaborating.

Colliers offered a rosier outlook for the city’s industrial market, highlighting Amazon’s under-construction 2.8-million-square-foot fulfilment centre at Barrhaven’s Citigate Industrial Park as a potential harbinger of things to come for the local sector.

“If popularized, this type of development could be used to intensify industrial complexes in prime locations, which could spur further development and grow Ottawa’s industrial market,” the report said.

“Ottawa’s strategic geographic position between Montreal and Toronto, proximity to the U.S. border and gateway to northern communities continues to make Ottawa a prime destination for logistics companies, which has bolstered the industrial market in the region.”

The city’s overall industrial availability rate jumped nearly a full percentage point year-over-year to 3.2 per cent, Colliers said. The firm cited an “influx of listings” for the increase, including 258,000 square feet of space at 2001 Bantree St. in the south end.

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