Ottawa’s office market showed “mixed signals” in the second quarter as leasing activity picked up in the city’s core while the suburban vacancy rate rose for the first time in nearly two years, a new report from a major real estate firm says. The city’s overall office vacancy rate fell to 10.8 per cent at […]
Ottawa’s office market showed “mixed signals” in the second quarter as leasing activity picked up in the city’s core while the suburban vacancy rate rose for the first time in nearly two years, a new report from a major real estate firm says.
The city’s overall office vacancy rate fell to 10.8 per cent at the end of June, Colliers said Thursday, down from 11 per cent in the first quarter.
Average asking rents held firm at $17.14 per square foot, “reflecting stable pricing despite ongoing economic uncertainty,” the firm added.
The drop in vacancy came despite more than 53,000 square feet of negative net absorption in the second quarter. Groupe Mach pulled its 12-storey, 125,700-square-foot office tower at 77 Metcalfe St. off the leasing market, reducing the city’s overall leasable footprint even as tenants shed more space than they picked up over the last three months.
Removing a building of that size from the city’s official inventory “has a significant influence” on vacancy figures, Warren Wilkinson, Colliers’ senior managing director for Ottawa, told OBJ on Thursday.
Wilkinson said 77 Metcalfe St., which Montreal-based Groupe Mach acquired from BentallGreenOak three years ago for $19.1 million, is being “earmarked for potential conversion” to housing. The 70-year-old class-B building has been vacant since its previous tenant, Nav Canada, moved out at the end of 2022.
While landlords are still struggling to fill lower-tier buildings, Colliers said tenants continue to seek out “trophy” properties in the core as “demand is shifting toward high-quality, well-located buildings that support collaboration and engagement” amid a growing push for workers to spend more time in the office.
The downtown vacancy rate dropped to 11.4 per cent from 12.3 per cent in the previous quarter, driven by strong interest in “class-A, move-in-ready spaces with modern layouts and amenities,” the firm said in its second-quarter office market report.
“While tenants often require less space than before, their standards for quality have never been higher.”
'Fringe core' finds favour
Just beyond the central business district, Ottawa’s “fringe core” – which encompasses the ByWard Market as well as areas such as Chinatown and the Glebe – “outperformed expectations” in the second quarter, Colliers said.
The submarket’s vacancy rate dipped fourth-tenths of a percentage point to 16.8 per cent thanks to a surge in leasing activity at lower-tier buildings from “cost-conscious tenants seeking value near the core,” the company explained.
The class-B office vacancy rate in the fringe core dipped slightly to 23 per cent in the second quarter, down from 23.3 per cent at the end of March, while the class-C vacancy rate fell to 4.3 per cent from 5.8 per cent.
Wilkinson said such buildings appeal to budget-minded users who are attracted to the fringe core because it’s “within striking distance” of the LRT and main arteries like the Queensway and features “amenity-rich” neighbourhoods that offer a variety of restaurants and other services.
“There are still cost-conscious user groups out there,” he said. “The fringe core still brings them relatively close to the core without the pricing of the core.”
In the suburbs, meanwhile, the vacancy rate rose for the first time in seven quarters. The rate ticked up four-tenths of a percentage point to 10.4 per cent on negative net absorption of nearly 100,000 square feet.
The exodus was particularly acute in the Ottawa West submarket, where the vacancy rate jumped 1.75 percentage points to 11.6 per cent.
Several users pulled out of large blocks of space in the west end last quarter, including consulting firm WSP, which vacated nearly 44,000 square feet of space at 1935 Robertson Rd., and engineering firm Morrison Hershfield, which was acquired by Stantec last year and recently gave up more than 28,000 square feet at 2932 Baseline Rd.
And Colliers predicts more big move-outs to come in the west. The firm said an additional 332,000 square feet of office space is expected to flood the market by early 2026, putting Ottawa West under “mounting supply-side pressure.”
East 'having its day'
But Wilkinson said that might not be a bad thing in the long run for west-end landlords. Tenants from other parts of the city could decide to relocate if building owners in the west start to cut rents and dangle other incentives as demand for space wanes, he explained.
“We could start seeing more of a flight to quality within that western suburban market as tenants look to take advantage of a potentially softening market,” Wilkinson said. “Maybe they make their moves today. We’ll have to figure out how that shift goes.”
While the vacancy rate in the east end rose to 8.9 per cent from 8.5 per cent in the previous quarter, Wilkinson said the submarket – which had a vacancy rate of 17 per cent in the first quarter of 2021 – is trending in the right direction as the LRT becomes more reliable.
“You’ve got great product there,” he said. “It’s like (the) east is having its day.”
And Kanata continues to be a steady performer, showing a slight dip in vacancy to 9.3 per cent on 7,200 square feet of positive absorption.
Wilkinson said the federal government’s pledge to boost defence spending should give a lift to the city’s main tech hub, which is home to a growing number of firms specializing in defence and security products.
While the feds have stated they plan to downsize their office footprint in the core, Wilkinson said Kanata should remain "relatively insulated from any potential long-term damage from the feds pulling out of office space.”
CBRE’s figures also showed a decline in Ottawa’s office vacancy rate last quarter.
The real estate firm said the local vacancy rate dropped to 12.5 per cent, down from 12.7 per cent in the first quarter, despite ongoing economic turbulence that continues to give some tenants pause.
Maxime Foucaud, the managing director of CBRE’s Ottawa office, said the Liberals’ federal election victory has given office occupiers “a little bit more clarity” on what to expect from the feds over the next few years.
Still, he cautioned it remains to be seen whether Mark Carney’s government will carry through on its plan to shrink the civil service – a move that could have major implications for the downtown office market.
Nonetheless, he said his brokers are fielding a growing number of requests from would-be tenants looking to tour spaces from downtown to Kanata.
“We’re starting to see positive momentum in the market,” Foucaud said. 
