After two bounceback quarters, Ottawa’s office market stumbled a bit in the first three months of 2022 as public-health measures aimed at blunting the fast-spreading Omicron variant of COVID-19 stalled leasing momentum, a new report says.
The capital’s office vacancy rate edged up slightly to 9.8 per cent in the first quarter from 9.7 per cent at the close of 2021, fuelled by a jump in the amount of empty office space in the core, Colliers said in its Q1 National Market Snapshot.
“Tenants again put their future office plans on hold in Q1, resulting in limited leasing activity,” the firm said in the document released Thursday.
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The vacancy rate in downtown office properties rose to 9.6 per cent last quarter, up from 9.2 per cent the previous quarter. The suburban vacancy rate, meanwhile, held steady at 10 per cent.
The dip in demand for office space had little impact on rents, however. The average net asking rent rose slightly to $16.86 per square foot last quarter, up from $16.67 in December, Colliers said.
The uptick in vacancies follows two consecutive quarters in which the vacancy rate dropped as tenants began returning to the office amid loosening COVID restrictions.
But even though the office market took a step back in Q1, Colliers said it remains healthy.
Indeed, 2021 was a record year for commercial real estate transactions in the capital, thanks to deals such as November’s $350-million sale of Place de Ville to Toronto-based Crestpoint Real Estate Investments and Crown Realty Partners, the second-largest real estate transaction in the city’s history.
The new year picked up right where 2021 left off, with a series of sales led by Crown Realty’s acquisition of the four-building Park of Commerce in Gloucester.
“Overall office vacancy rates in Ottawa have been stable over the past two years due to its diversified market,” Colliers said. “This has attracted new investors to the Ottawa market, resulting in a flurry of investment offices sales in the past two quarters in both the downtown and suburban markets.”
On the industrial side, the firm said it expects the market to remain “extremely tight” amid unrelenting demand for a limited supply of vacant space.
Ottawa’s vacancy rate remained below one per cent in the first quarter, while average asking net rents rose to new record highs of nearly $12.50 per square foot.
Colliers said this has led to increased costs for tenants who’ve opted to renew their existing leases due to the shortage of available alternatives.
“Renewals offered to tenants represent a significant jump from previously negotiated leases 5-10 years ago,” the report said. “Their current rents tend to be in the $7-$8 per square foot range, but now the landlords are asking more than $12 with minimal incentives.”