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Taking the temperature of Ottawa’s commercial real estate market

Ottawa commercial property

The inflation rate fell to 5.2 per cent in February (below the expected 5.4 per cent) and was down from 5.9 per cent in January. This is largely due to the Bank of Canada’s monetary tightening campaign, which continued into the new year seeing the target overnight interest rate rise from 4.25 per cent to 4.50 per cent in late January. Net inflation has consecutively fallen (albeit slowly) for almost six months now. Despite the progress, many economists are still calling for a mild economic recession this year which will likely trigger monetary easing policies to help fuel a recovery in 2024.

Looking at Ottawa-Gâtineau more specifically, the region closed out the first quarter of 2023 with an unemployment rate of 4.1 per cent. Over the past year, the unemployment rate has decreased by 0.4 per cent and is far from the 9.5 per cent peak unemployment observed in June 2020. That said, it’s 6,100 new part-time positions that are responsible for the net employment increase during the first quarter as there was a decline of 4,000 full-time jobs. Although the city’s combination of public and private sectors is a strong one, people are not insulated from economic impact and the near-universal higher costs of living.

The public sector’s return to the office initiative is now in motion and has been ramping up since the end of 2022. The directive is in line with the standard hybrid work expectations of two to three days per week spent at the office that has been playing out in the private sector. Given the tumultuousness in the tech sector of late, restructuring has seen impacts on the Kanata market with vacancy rates of 7.9 per cent according to Co-Star data (the Central Business District’s vacancy is 8.0 per cent for comparison). Subleases and vacancy rates will likely continue to rise as most tenants require less space now (and come renewal) due to hybrid plans.

We are currently observing a lot of the same trends from the end of 2022 so far this year. Mainly: lower leasing demand due to the general uncertainty of will-they, won’t-they hybrid work models. Most organizations still look at in-office attendance as vital but are focusing on the areas where this is most necessary. Employers will need to stay attuned and account for what their employees value most (autonomy, flexibility, and work-life balance) to figure out the optimal hybrid model and how that translates to office square footage.

All of these questions and current conversations tie into the decarbonization discussion too. With emissions and net-zero targets set for the coming decades, owners and operators must upgrade their buildings to meet these goals and attract tenants. Whereas historically, Class A and B buildings downtown followed similar vacancy trends, the ‘flight to quality’ trend that’s been observed has inverted the relationship. Older spaces will struggle to retain tenants in a market where better and more modern space is available with increased incentives.

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commercial market report