Tale of two cities: Office vacancies rising downtown, but suburbs faring better, Colliers says

David Sali

January 10, 2025

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As a commercial real estate broker who runs his own business, Denis Shank is not surprised that office vacancy rates in Ottawa’s downtown are on the rise while landlords in the suburbs are seeing more interest in their properties than they have in years. Shank, who launched Capworth Commercial Realty Brokerage in 2016, moved his office from Catherine Street in Centretown to its current location on Prince of Wales Drive during the pandemic. Putting on his tenant hat, Shank says the decision to relocate was practically a no-brainer. The new office is a shorter commute for him and his six on-site employees. The building offers access to amenities such as a pool and sauna. And – perhaps best of all – there’s plenty of free parking. In addition, now that the Trillium north-south LRT line is open, Shank believes public transit will play a more “positive role” in making suburban office properties even more attractive to prospective occupants. “All that combined, it’s a perfect climate for the burbs to continue flourishing in their vacancy absorption,” he said. “Bottom line, (in the) burbs, vacancy will continue to go down.” New figures from Colliers suggest that’s exactly what’s happening. The vacancy rate outside downtown Ottawa dropped nearly half a percentage point in the fourth quarter of 2024 to 10.6 per cent, the real estate firm said in its latest office market report released Thursday. It marks the sixth consecutive quarter of positive net absorption in the suburban market. Vacancies declined in all suburban submarkets except the east end, where the rate ticked up less than a tenth of a percentage point to nine per cent. Breaking down the suburban market, few areas of the city are hotter right now than Kanata, where clients in the tech and defence sectors are snapping up space at a steady clip. The tech hub was the most active submarket in the city during the last three months of 2024. Colliers’ data shows that 17 new leases totalling 117,765 square feet were signed in Kanata in the quarter. They accounted for some of Ottawa’s biggest deals in the closing months of 2024 – including Marvell Technologies’ lease for 32,371 square feet of space at 350 Legget Dr. and Pleora Technologies’ takeover of 17,600 square feet at 450 March Rd. As a result, Kanata's vacancy rate dropped by more than a full percentage point compared with the previous quarter to 10.1 per cent, with 75,583 square feet of positive net absorption. Veteran Colliers broker Lindsay Hockey says he and business partner Oliver Kershaw are practically being run off their feet responding to demand for space in the city’s far west end. They recently brokered a deal with a major tech client that’s set to lease a 45,000-square-foot building on Terence Matthews Crescent in Kanata south and add 5,000 square feet of new lab space. “The defence sector is strong right now,” Hockey explained. “We’ve seen growth with those groups in Kanata, either maintaining their footprint or growing. Just the tech sector in general, there’s just been good, continued growth. It’s helped Kanata hold its own of late.”

Downtown market remains sluggish

Meanwhile, downtown landlords are dealing with a very different reality. The vacancy rate in Ottawa’s core soared 1.35 percentage points to 13.1 per cent in the fourth quarter, Colliers said, with 240,686 square feet of negative net absorption. All classes of buildings – including the most highly coveted class-A properties – saw a rise in vacancies. Colliers noted that several large blocks of space were emptied in the fourth quarter, including 101,024 square feet at 250 Albert St. that was vacated by the Canada Revenue Agency; 43,203 square feet that Telus put up for sublease at 215 Slater St.; and 39,884 square feet at 123 Slater St. that was previously occupied by professional services firm Welch LLP, which moved to a smaller location in Constitution Square. In an effort to stem the bleeding, property managers are continuing to try to lure tenants with inducements such as lower rents, Hockey said. While average asking net rents in Ottawa were up one per cent compared with the previous quarter, they declined 1.1 per cent year-over-year to $17.26 per square foot, Colliers said. Hockey noted that the federal government, Ottawa’s largest renter of office space, is rethinking its real estate needs and choosing to offload excess space. “It seems like every week I read an article or I get a call and I learn about another large pocket of federal government space that’s going to be coming back to the market,” he said. “It’s not all class-A, but I think that’s a big impact on the increase in the vacancy rate for sure and is driving everybody else to be more competitive with the deals they do. Until things level out, I think we’ll continue to see that.” Colliers tried to put a somewhat positive spin on current market conditions in its report, saying it’s “not all doom and gloom” for downtown landlords. The company said large blocks of vacant space are “concentrated in only a handful of buildings,” adding that “leasing activity in the downtown market shows promising signs, with increasing touring activity across tenant sizes, particularly among larger users.” Shank, however, isn’t so sure the downtown market is on the comeback trail. He points to one of his long-term clients, an engineering firm that caters to the defence sector, which recently downsized from more than 7,000 square feet in a class-C building on Albert Street to about 4,000 square feet of “triple-A” office space in the Sun Life Centre at 50 O’Connor St. Shank said it wasn’t a cost-cutting move – rather, it was driven by the tenant’s desire to be located in a building with more modern amenities. “The focus wasn’t about money,” Shank explained. “It was just, ‘How can I make my space more attractive to bring in my staff to collaborate in the office?’ That’s where we’re at.” Shank says many other clients who occupy space downtown are also looking at shrinking their office footprints. And he thinks that trend will continue for a while yet. “It’ll get a little bit worse before it gets better,” he said. For his part, Hockey said he’s hopeful that the worst of the downtown office downturn is over. “I do feel like we’re slowly getting back to normal downtown, just when you look at occupancy levels and traffic patterns,” he said. “But I don’t know how long it’s going to take. I’ve always been a fairly optimistic person. We are seeing a lot of positive signs, but this is going to take time. It’s going to take years, not months. But I’d like to think we’re starting on the pathway out of this most recent problem.”