Amid warnings that many tenants have few options for space when looking to relocate or expand, the Ottawa Real Estate Show invited the head of one of the city’s major developers to explore some of the factors limiting new office and industrial construction in the capital.
Earlier this spring, brokerage firm CBRE said Ottawa is facing a “shortage” of office spaces in excess of 50,000 square feet – a situation that’s limiting the ability of tenants to expand or relocate.
Similarly, CBRE said tenants in the industrial market are currently facing a record low availability rate of 2.2 per cent, constricting their ability to expand.
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“Larger tenants have few options. Smaller (tenants) still have a number of options, but across the board and in all markets, inventory is drying up and tenants are faced with less and less choice,” said Shawn Hamilton, managing director of CBRE Ottawa.
This is putting upwards pressure on rental rates; downtown class-A rates rose for six consecutive quarters before softening slightly in early 2019 to an average of $23.63 per square foot, while industrial asking rates are up 5.7 per cent year-over-year to $10.12 a square foot, according to CBRE figures. However, the tightening of the market has yet to spark any major new developments.
Hugh Gorman, the CEO of developer and property management firm Colonnade Bridgeport, told the Ottawa Real Estate Show that this stems in part from the city’s historically modest absorption rates relative to other cities.
“Ottawa traditionally hasn’t been a spec-build market where landlords (construct) buildings and hope that the tenants will come,” he said. Instead, Ottawa developers must typically secure a certain amount of preleasing commitments from tenants before their capital partners give the green light to break ground.
Another related factor is the comparatively low concentration of corporate head offices in Ottawa, Hamilton argued. While many of the locally based R&D centres and other divisions may be growing, he said it’s often the companies that are headquartered in Toronto, Montreal and Calgary that commonly kick off new builds in those cities.
For more insights into Ottawa’s development landscape, including multi-residential construction, watch the Ottawa Real Estate Show on YouTube.