Non-Residential

Public Works picks Sun Life office space over low bid

October 17, 2012

Feds deem EDC offer ‘non-compliant’ and forgo $3M in savings

A significant office leasing win for a downtown landlord is raising questions about why federal officials rejected a significantly lower competing bid from a Crown corporation.

Public Works recently signed a deal to lease slightly more than 78,200 square feet of space in the two Sun Life Financial Centre towers, which occupy the downtown city block bounded by Bank, Queen, O’Connor and Albert streets.

The space will be occupied by the Department of Justice, which is being forced out of the approximately 77,400 square feet of space it currently occupies in the Bank of Canada’s headquarters on Wellington Street, ahead of planned renovations.

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For Ginger Bertrand, some of her earliest childhood memories in Ottawa are centred around healthcare. “I grew up across the street from what was originally the General Hospital,” she explains,

The deal is comprised of two separate leases, both of which run for five years and contain three one-year renewal options. The annual rent for the 45,500 square feet on the fifth and sixth floor of 50 O’Connor St. adds up to approximately $2.1 million, according to Public Works.

The department says the 32,700 square feet on the 10th and 11th floor of 99 Bank St. will cost approximately $1.45 million annually.

According to a summary of bids obtained by OBJ, Export Development Canada offered to let the Department of Justice sublease vacant space inside its new headquarters at the corner of Slater and O’Connor streets, submitting bids for $1.75 million and $1.17 million.

Accepting the EDC offers would have saved taxpayers approximately $3.15 million over five years, as well as filling vacant space for which the Crown corporation is currently paying its landlord, Manulife.

Public Works said both EDC bids were rejected “on the basis of non-compliance to mandatory requirements in the tender document,” but refused to elaborate when asked for further details on why the downtown building – Ottawa’s newest office tower – was not considered.

EDC spokesperson Phil Taylor declined to identify the specific sticking points.

He said there were several items within EDC’s submission that could not be confirmed by the deadline. These items were identified in advance and accepted by Public Works. However, once EDC was identified as the lowest bidder, “some items could not be resolved to mutual satisfaction” and government officials dropped the bid, added Mr. Taylor.

While government officials say no policy prevents it from acquiring subleased space, one observer said federal real estate officials have a preference for deals signed directly with landlords.

“Historically, Public Works has shown a reluctance to (occupy) subleased space,” said Bruce Wolfgram, a vice-president at Primecorp Commercial Realty.

Either way, the deal is a major victory for the Sun Life Financial Centre, which is managed by Bentall Kennedy.

The large blocks of space had been vacant for roughly a year and a half. The new agreement lowers the vacancy rate inside the two towers to approximately six per cent, said director of leasing David Pridham.

Making the lease even more significant is the increased competition between downtown landlords brewing on the horizon.

Morguard is already leasing space inside its new office tower, currently under construction, at the corner of Gloucester and Elgin streets, and several major tenants have indicated their intention to leave the World Exchange Plaza and Constitution Square.

Meanwhile, federal government demand for downtown office space is expected to be low for the foreseeable future as takes possession of several new buildings that are under construction.

Bids for Department of Justice office space

Lease #1

150 Slater St.

(Export Development Canada sublease)

$422.68 / sq. m. ($39.27 / sq. ft.)

50 O’Connor St.

(Sun Life Financial Centre)

$499 / sq. m. ($46.36 / sq. ft.)

Lease #2

150 Slater St.

(Export Development Canada sublease)

$379.62 / sq. m. ($35.27 / sq. ft.)