Local real estate experts expect Ottawa’s office vacancy rate to hold near a “healthy” 12 per cent for a few years before decreasing in 2026 or 2027.
Ottawa’s office vacancy rate currently sits at just under 12 per cent, according to Mitch Strohminger, director of market analytics for CoStar, who moderated a panel of industry specialists Wednesday at the Ottawa Real Estate Forum for a discussion on how to address empty office space in the city.
“Leasing activity has been under pressure for the last few quarters,” he said. “Available and vacant office space has, of course, risen since the beginning of the pandemic. At the same time, (available) office sublet space has actually been declining over the last three quarters.”
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The federal government’s directive for employees to work in-person at least three days per week has created a spark of activity, particularly in Ottawa’s downtown core. Sachin Anand, senior director of acquisitions for Regional Group, said the market has re-found some stability.
“Looking at the vacancy stats, that’s actually a healthy office vacancy rate globally or nationally,” he said. “Anywhere between eight and 12 per cent would be my range of a healthy office market, depending on what city you’re in. We’ve seen a bit of a power shift from the landlord to the tenant that’s just a reflection of a spike in vacancy. But for Ottawa, that’s actually still a healthy market.”
Panelists agreed that some form of hybrid work is likely here to stay, with Michael Swan, assistant vice-president of property management and leasing for Morguard, suggesting that four days in-office will become the new “magic number.”
Swan said he expected the current vacancy rate to remain steady for the next few years at least.
“I think we won’t see any significant declines in the vacancy rate until 2026 or 2027,” he said. “Maybe we’ll go up to 13 (per cent), maybe down to 11 (per cent), but I say in the next two or three years we’ll stick around this number. Then, obviously, there’s no office space in the pipeline, so I do see it, by 2026-2027, getting below 10 per cent.”
He added that executives are increasingly confident that staff will return.
“I saw a stat from a KPMG survey that, last year, of 1,300 CEOs across the globe, 63 per cent thought in three years that everyone would be back in the office full time,” said Swan. “They redid the survey again this year and the stat was 84 per cent of CEOs thought everyone would be back. The trend is coming back to the office.”
Still, Ottawa is behind other major North American cities when it comes to office vacancy rates, mostly due to the outsized presence of the federal government, said Corinne Dorazio, vice-president of leasing for Dream Office REIT, the company behind Zibi.
Dorazio, who oversees leasing for Dream nationally, said Ottawa has the lowest office occupancy return rate in Canada. Meanwhile, she said, cities like Toronto have excelled.
“Our occupancy is back up to 80 per cent of pre-COVID,” she said. “For the peak days, we’re seeing 100 per cent in office. Our touring occupancy is up; we conducted something like 75 tours in September alone. People are touring office space and seeing the value of needing office space.”
Western cities like Calgary and Regina are also seeing renewed activity, securing leasing for displaced tenants.
But across the country, she added that landlords are facing increased challenges.
“It’s still a tenant’s market,” said Dorazio. “Markets are still soft and that’s everyone. Tenants don’t want to spend their own capital and they’re pushing those costs off onto the landlords and they can because that’s the way the market is right now. For me, I’m seeing a lot of flexibility is key. I’ve never handed out so many options to terminate. Are tenants going to exercise them? Probably not, but I think they want that flexibility.”
In a report earlier this month, Colliers said it expects Ottawa’s downtown office occupancy levels to “trend higher” in the last few months of 2024, fuelled by a federal government mandate requiring public servants to commute to their desks more often.
The capital’s return-to-office rate still lags other major Canadian cities, Colliers said in its third-quarter office market report, in which it noted the city’s downtown office vacancy rate jumped more than a full percentage point from the previous quarter.
Colliers said the city’s overall vacancy rate held steady at 11.5 per cent in the third quarter, with just 5,500 square feet of negative net absorption.
“Although leasing activity remained steady, it was not sufficient to counterbalance rising vacancies,” the report said.
Meanwhile, CBRE also suggested the third quarter was a mix of good and bad news for office landlords in Ottawa.
CBRE, which bases its statistics on lower total inventory totals than Colliers, said that Ottawa’s office vacancy rate ticked up in the third quarter as new listings rose and tenants left properties that were previously on the market but still occupied.
The nation’s capital saw net negative absorption of about 124,000 square feet between July and September, CBRE said. The office vacancy rate rose to 12.2 per cent during the quarter, up from 11.8 per cent at the end of June.
