Ottawa’s economy risks running out of room to grow – literally – if developers don’t step up soon to address a critical shortage of office space in the downtown core and Kanata, a prominent local real estate analyst said Wednesday.
Shawn Hamilton, managing director of CBRE’s Ottawa office, told the crowd at the real estate services firm’s annual market outlook event that at current rates of growth, the city requires an additional 300,000 square feet of commercial space – equivalent to a building almost the size of Performance Court at 150 Elgin St. – in the central business district to meet the needs of the burgeoning “urban tech” sector and other tenants.
In addition, he said Kanata companies are growing fast enough to absorb up to 800,000 square feet of extra real estate over the next five years – an amount that would more than double the west-end tech hub’s current footprint of about half a million square feet.
“Right now, we are on track to be a victim of our own success.”
“Right now, we are on track to be a victim of our own success,” he said during a breakfast presentation at the Westin hotel. “The only thing we need now is room to grow, and it is incumbent on all of us to do what we can to help create more. If we do nothing and run out of space, we risk stifling the growth that we have worked so hard to achieve.”
Ottawa has added nearly 100,000 residents and 46,000 new jobs over the past five years, Hamilton noted. In that same time, businesses have snapped up 2.1 million square feet of office space – 88 per cent of that since 2017 – driving down the vacancy rate to 7.5 per cent.
“The reality is we are approaching the point where low vacancy in the office market is making growth difficult for tenants, whether they’re in the central business district or in the Kanata tech hub, where the rate of growth is higher than in the core,” Hamilton said.
There is even less breathing room in the industrial sector, he added. The industrial market has absorbed nearly two million square feet of space since 2014, pushing the vacancy rate down to just 2.2 per cent.
The 25-year industry veteran called on the city’s largest office tenant – the federal government – to do its part by relocating the Department of National Defence out of the downtown core and shifting other departments closer to the east-end civil servant hotbed of Orléans to help free up space for private-sector business growth.
He also urged the city to rethink its plan to hike development charges in an effort to spur a new wave of office and industrial construction.
Hamilton said he understands the financial risks associated with investing tens or hundreds of millions of dollars in new commercial space in the midst of looming global economic uncertainty.
But he argued the long-term benefits of adding to the city’s real estate inventory are worth it, even with the potential for an economic downturn that could saddle landlords with empty office towers down the road.
“I’m reading the tea leaves as they’re put in front of me, and I think we could accommodate this growth,” Hamilton told OBJ after his presentation. “If our projections are off, we don’t have to continue with development, but I think if we had development right now, we would definitely absorb it.”
Looking west to Toronto and Vancouver, Hamilton said those red-hot commercial real estate markets waited too long to launch new office builds and are now scrambling to satisfy pent-up demand for millions of square feet of space.
Ottawa, he added, could soon find itself in the same predicament.
“I think we are where Toronto and Vancouver were two or three years ago,” he said. “We don’t want to wait another six months, a year before building, because I think we will find ourselves in a position where people might abandon growth opportunities in Ottawa because there’s no space coming down the pipe.
“I think we’re in a fortunate position right now that if we start building sooner as opposed to later, we will be able to accommodate the growth that we’re seeing happening in the city.”
Shawn Hamilton joined Colonnade Bridgeport CEO Hugh Gorman on the Ottawa Real Estate Show last month to discuss the office and industrial space shortage facing Ottawa tenants. Watch the full episode below. The Ottawa Real Estate Show is sponsored by CBRE and Mann Lawyers.