Ottawa’s office vacancy rate rose nearly a full percentage point in the third quarter as the COVID-19-fuelled economic slump prompted more tenants to shed space or take a wait-and-see approach to jumping into the market, real estate firm CBRE says.
The overall office vacancy rate in the capital was eight per cent for the three-month period from July to September, the company said its third-quarter report on the Canadian office market. That’s up from 7.2 per cent in Q2, marking the third consecutive quarter that the vacancy rate in Ottawa has risen.
The vacancy rate for class-A space in the downtown core jumped 150 basis points to six per cent – a dramatic increase fuelled largely by Shopify’s move to get rid of 170,000 square feet of real estate at its former headquarters on Elgin Street.
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Fellow downtown tech firm OpenText also returned 20,000 square feet to the market last quarter, helping push the overall amount of office space available for sublet in Ottawa to more than 530,000 square feet – nearly double the total from the previous quarter.
CBRE Ottawa managing director Shawn Hamilton said he’s not surprised a growing number of business tenants are looking to ditch pricey digs as they brace for more economic uncertainty.
Not in the ‘red zone’
Still, he said the local market still has a long way to go before it sees sublease activity at levels approaching the Great Recession of 2008, when a million square feet of space was put back on the market, or the dot-com burst of 2003 when 2.5 million square feet of space was available to sublet.
“Although this is a trend that is growing, we’re still not what I would call in the red zone,” Hamilton said. “Will it go there? That’s what we’re watching (for). Right now, we’re not hearing of wholesale (office real estate) cutbacks across the board.”
Sublet space now represents nearly one-fifth of all vacant real estate in the downtown office market. Hamilton noted that when the city’s largest office tenant, the federal government, shed a hefty chunk of space in the core back in 2008, Ottawa’s new generation of growing tech enterprises were in growth mode and helped stabilize the market.
This time around, he explained, it’s the Shopifys that are downsizing, and there’s no obvious crop of tenants in other sectors to replace them. The federal government, which is also rethinking its traditional office footprint, is unlikely to lease the space, Hamilton added.
“To me, this sort of shows that the downtown is starting to behave a little more like the private-sector market than it has traditionally,” he said.
While business tenants generally make for a “more vibrant downtown core in good times,” Hamilton said, “the corollary of that is when things are soft, we might feel it a little more.”
In the long run, he thinks Ottawa will bounce back. The capital’s relative affordability and high quality of life could make it a “more attractive” destination for private-sector tenants looking to leave markets such as Toronto and Montreal for cheaper space elsewhere, Hamilton said.
“Once this is all said and done … I think Ottawa could look pretty good,” he said.
On the industrial front, the city’s availability rate jumped a full percentage point to 4.3 per cent in the third quarter as space at an industrial site on Bantree Street was put on the market and a new development opened on Ages Drive.
Hamilton said the city’s aging stock of industrial properties needs to be “modernized” to attract new tenants. But he also believes Ottawa’s industrial sector is poised for a renaissance as more e-commerce retailers consider the city as a potential site for new fulfilment centres, thanks to its prime location between Toronto and Montreal.
Pointing to Amazon’s new 2.8-million-square-foot warehouse that’s now under construction in Barrhaven, Hamilton said he thinks the region will be “the benefactor of more Amazon-type facilities” in the near future.
“I see industrial being a growth industry for Ottawa,” he said.