Ottawa’s office vacancy rate declined in December as aging buildings were taken off the downtown market and a growing number of tenants – particularly in Kanata – moved into new or expanded office space.
According to Colliers, the office vacancy rate fell to 12.2 per cent in the final quarter of 2023, down nearly half a percentage point from the previous three-month period thanks to positive net absorption of nearly 340,000 square feet.
CBRE’s overall vacancy number for Ottawa was slightly higher at 13.3 per cent, but it too was down from 13.6 per cent in the third quarter.
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The drop in vacant space follows a protracted market swoon that was triggered by the massive shift to remote work during the pandemic.
Louis Karam, the managing director of CBRE in Ottawa, said the latest figures leave him “cautiously optimistic” about the future of the National Capital Region’s office market.
“It was a good Q4, and hopefully we’ll be able to sustain it,” Karam told OBJ on Wednesday.
“While we continued to see tenants rightsizing and downsizing their offices, we still saw an increase in activity. If I go back about a year ago, what I was saying is that it’s going to take 12 to 24 months; it’s going to get worse before it gets better. I don’t think we’re at the end of the tunnel, but it’s a good sign of things starting to move in the right direction.”
In their reports, CBRE and Colliers cited a couple of key factors for the positive absorption in the fourth quarter.
For one thing, the amount of available space in the downtown core shrank thanks to the removal of two aging class-B office buildings slated for demolition or conversion to residential – 110 O’Connor St. and 130 Slater St. – from the market.
That took a combined total of more than 300,000 square feet of office space out of the city’s downtown inventory. While that gave the class-B occupancy rate a boost as its vacancy rate fell from more than 20 per cent to 15.5 per cent, offices at the higher and lower ends of the quality spectrum continued to struggle to find new tenants.
“It isn’t leasing activity (driving the drop in downtown vacancies), and no one should be fooled otherwise,” explained Warren Wilkinson, the senior managing director at Colliers International in Ottawa. “It isn’t as great as it seems from a percentage perspective, but it’s still positive and we’ll take it.”
Kanata also showed signs of renewed office leasing activity in the fourth quarter.
Colliers said the tech hub’s class-A vacancy rate dropped nearly a full percentage point to 13.2 per cent, while the class-B rate dropped more than a full point to 13.9 per cent as tenants such as Solace and DRS Technologies expanded their footprints.
Wilkinson said that as more and more tech firms mandate a return to the office for most employees – at least a few days a week – it creates a snowball effect as other organizations follow suit.
“Companies are confident that they know how their space is going to be utilized; they know what they need to do in order to bring their employees back,” he said. “We’re seeing that reflected in new lease transactions and positive absorption.
“The biggest thing that companies want to know when it comes to their lease transactions is what other companies are likely doing. Ottawa is a small community, and the tech sector – whether it is software as a service or hardware – they are going to want to know what their compatriots and competitors are doing. They’ll move forward based on that.”
At the same time, Karam noted that site work has begun on a new office building at 777 Silver Seven Rd. in Kanata, which will bring an additional 72,000 square feet of space to the market later this year.
It’s the first major office construction project in the west end since Kinaxis’s new headquarters was completed in 2021. Karam said it’s not clear who will occupy the new development and when.
“I don’t think we’re out of the woods,” he said. “We have to see what’s going to happen with some of that new office (space) in Kanata.”
Other submarkets, such as the east end, saw an increase in vacancies in the fourth quarter.
That didn’t surprise Wilkinson, who said filling office buildings in the eastern suburbs “has always been a challenge.” He suggested ongoing woes with Ottawa’s light-rail system could be dampening demand for space east of the core.
“As Kanata and the downtown core continue to pick up, there are going to be winners and losers,” Wilkinson said. “I don’t think it’s a reflection of a poor market – I think it’s just a level set.”
