With the e-commerce explosion during the pandemic fuelling a spike in demand for warehouse space, Ottawa’s growing prominence as a distribution hub is making the city a more attractive destination for all types of industrial investors, the head of a major real estate investment firm says.
A pair of national real estate firms – Montreal’s PRO Real Estate Investment Trust and Vancouver-based Parkit – recently announced they’ve agreed to major acquisitions of industrial property in Ottawa as the city’s vacancy rate continues to fall and asking rents for what little space is available hit record highs.
PROREIT said Monday it’s buying three industrial buildings in the capital totalling 283,000 square feet. In a news release, the company said the properties are located close to Highway 417 and major arterial roads and are 96 per cent leased to a “diverse mix of tenants,” with a weighted average lease term of three and a half years.
Parkit, meanwhile, said it expects to close a $28.5-million deal for an unidentified property in Ottawa later this week. The company did not immediately respond to requests for more information on Monday.
PROREIT did not divulge the location of the properties it is buying or the financial terms of its transaction pending completion of due diligence. The deal is expected to close in April.
The company said the buildings are among 12 properties it’s agreed to purchase in Ottawa and Winnipeg, with a total transaction value of $86.8 million.
“We think these are great new investments for us, and they’re important additions to our portfolio,” PROREIT co-founder and chief executive James Beckerleg said in an interview with OBJ on Monday.
Founded in 2013, the Montreal firm now owns more than 90 properties in nine provinces. Seven of the 12 buildings in its Ontario portfolio are located in the Ottawa region, a tally that will rise after the latest deals are finalized.
The company owns nearly 300,000 square feet of industrial mixed-use space in the capital, along with about 340,000 square feet of office space.
Its notable local holdings include an 11-storey office building at 251 Laurier Ave. W. it acquired in the fall of 2019 as well as a 280,000-square-foot industrial and commercial complex at 500 Palladium Dr. in Kanata that houses tenants such as DNA Genotek, Ribbon Communications and DRS Technologies Canada.
Ottawa is becoming an emerging player in the warehouse and distribution space thanks to its easy access to major interprovincial highways and close proximity to Toronto and Montreal, and many of Canada’s leading brokerage firms say space will continue to be at a premium in the industrial market throughout this year and beyond.
CBRE, for example, is projecting Ottawa’s industrial availability rate will drop to 3.5 per cent in 2021, down from 4.1 per cent last year.
Despite an aging inventory – the city’s average industrial building is 40 years old – asking rents have hit record highs over the past 12 months and are expected to rise throughout 2021 to an average of $11.30 per square foot, the firm said in its recent 2021 outlook.
Potential for solid returns
Other observers, such as BOMA Ottawa president Shawn Hamilton, say there’s potential for tens of millions of square feet of new industrial construction within the city’s boundaries – if more land can be opened up for development.
While e-commerce giants such as Amazon are grabbing headlines for opening massive warehouses in the region, Ottawa is also drawing major interest from REITs and institutional investors that see potential for solid returns in a market with limited inventory, Beckerleg said.
“To some extent in industrial properties, a tide raises all boats,” he said. “While a lot of our investments aren’t directly involved in (e-commerce distribution) sectors of the market, we believe that they’re becoming a driver for the whole industrial space.”
Beckerleg said he “sees a real future” for industrial space in mid-tier urban centres such as Ottawa, adding his firm plans to focus on expanding its footprint in that sector.
“We’re not developers, but we’ll reposition buildings … or take on buildings with some empty space that we think can be leased out after some renovations,” he explained.