‘Return to the office is sluggish’: real estate experts say Ottawa’s vacancy rate could remain flat for years

Ottawa downtown

With Ottawa’s office vacancy rate at its highest level since before the pandemic, the city’s largest landlord is predicting demand for space in downtown office towers could remain flat for several years and is urging tenants to bring employees back to the workplace.

“We haven’t seen a significant return to the office in any meaningful way,” Hugh Gorman, the CEO at commercial property manager Colonnade BridgePort, said this week after CBRE’s latest market report showed Ottawa’s office vacancy rate had jumped 1.3 percentage points to 10 per cent in the third quarter, a four-year high.

“We need leadership from the landlord community but also the business community in terms of bringing people back to the office. I think we need to see better leadership from employers and better leadership from unions to acknowledge the fact that (the work environment) is not going to be the same, but people do need to get back working face to face.”

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Gorman, whose firm manages more than 6.3 million square feet of commercial space in the National Capital Region, said even at Colonnade BridgePort fewer than 70 per cent of employees are back in the office full-time.

Yet as much as he hopes to see more tenants commit to a full-scale return to their spaces, he knows that’s not likely to happen any time soon.

“I don’t think there’s anything to suggest that we’re going to see growth in office space demand in the near term.”

“I don’t think there’s anything to suggest that we’re going to see growth in office space demand in the near term,” said Gorman, who predicts demand for office real estate is likely to decline or at best hold steady for the next three to five years.

More and more tenants are looking to “rationalize space” as they enter a post-pandemic world, he explained.

“If you’re forced to make a decision today, it’s probably status quo or downsizing as opposed to growth,” said Gorman, adding many of his clients are taking a “wait-and-see approach” to their space requirements. “It’s just a structural shift in the market that we’re going to have to adapt to.”

CBRE’s latest report backs up that assessment. It said Ottawa’s downtown vacancy rate surged to 11.5 per cent in the third quarter, up from 10 per cent at the end of June, while the suburban rate jumped 1.1 percentage points to 8.8 per cent.

CBRE’s Ottawa-based senior vice-president Louis Karam said much of the increase was driven by a spike in the amount of space available for sublet, which rose from 470,000 square feet in the second quarter to 573,000 square feet by the end of September. 

A couple of big-name tenants have put significant chunks of real estate on the market in the past few months, Karam noted. They include tech giant Ciena, which offered 100,000 square feet of space for sublet at its office at 5050 Innovation Dr. in Kanata, and Bell, which is looking to sublease nearly 40,000 square feet at 150 Elgin St.

Reassessing footprints

They are among a growing number of businesses that are reassessing their office footprints in a world where hybrid work has become the norm, Karam said.

“A lot of clients that we’re talking to are thinking, can I potentially give back 30 per cent of my stake, whether it’s on sublease or giving it back to the landlord,” he said.

“Throughout the pandemic, our strong public sector in Ottawa has kept us steady, which is a great thing. But right now, we’re fast coming to a period where a return to office is sluggish, and that’s starting to be felt.”

Several recent studies suggest Ottawa is indeed lagging behind other major Canadian cities when it comes to workers returning to the office.

A Statistics Canada survey earlier this year revealed that nearly 46 per cent of Ottawa’s labour force was still working from home, the highest rate in the country. By comparison, in Toronto just 35 per cent of workers were staying home.

In addition, Ottawa also finished far down the list in a joint study between the University of Toronto and the University of California, Berkeley that compared mobile device usage in 62 major North American cities at downtown sites like bars and restaurants between March and May of this year and the same time period in 2019.

The researchers found that downtown Ottawa had returned to only 48 per cent of pre-pandemic levels of activity, placing it 46th overall.

Gorman said the federal government, the region’s largest occupier of office space, could trigger a wider real estate revival if it mandates a broad return to the workplace for civil servants, but that has yet to happen.

“A lot’s going to depend on what the feds do,” he said.

‘Need to get civil servants downtown’

Bruce Wolfgram, a principal at Ottawa’s Proveras Commercial Realty, echoes that assessment.

While some of the brokerage’s larger clients are capitalizing on rising vacancies to negotiate lower rents on extended leases of up to 20 years, he says others whose leases are now up for renewal are signing short-term deals for just a couple of years because they’re reluctant to commit for the long haul.

“I really believe we need to get the civil servants back downtown,” said Wolfgram, whose firm exclusively represents tenants. “That will help spur on the rest of the private sector to help show their own employees that the time is right to re-enter the workplace.”

Gorman and Karam say the threat of a recession is also weighing on tenants’ minds as they ponder their ongoing real estate requirements.

“I think that waiting game is going to continue,” Karam said

Gorman, who is a member of a task force that’s eyeing ways to revitalize Ottawa’s downtown, said empty office towers create a ripple effect for merchants that rely on the workers who usually populate those offices to pay the bills. 

“Our core needs three things – it needs tourism, it needs more people living in it and it needs people working there,” he said. “I think there’s weakness in all three areas, which is troubling.”

At the same time, Gorman noted that landlords in the nation’s capital, where the federal government acts as a steadying influence on the local economy, are still better off than those in most other Canadian cities. 

Even after the recent spike, Ottawa’s office vacancy rate remains the second-lowest in the country behind Vancouver.

“If you think about it, it’s still a pretty good situation,” Gorman said. “Ottawa’s always slow and steady wins the race. I don’t see any reason to push the panic button.”

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