With tenants ditching office space across the city, the real cost of rent is falling to levels not seen in years as landlords offer discounts and other inducements to fill vacancies, industry insiders say. While headline rental rates haven’t budged much during the pandemic, real estate observers acknowledge that many clients are now paying less […]
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With tenants ditching office space across the city, the real cost of rent is falling to levels not seen in years as landlords offer discounts and other inducements to fill vacancies, industry insiders say. While headline rental rates haven’t budged much during the pandemic, real estate observers acknowledge that many clients are now paying less for office space in Ottawa than they were in the pre-COVID era. Across the National Capital Region, landlords are offering “significant incentives” to tenants, such as months of free rent and more capital to help pay for renovations, says Hugh Gorman, CEO of Colonnade BridgePort, the city’s largest privately owned property management firm. “Those things have always been there, but they’re just a little more aggressive now,” the veteran real estate executive explains. “I think you’ve got to be in tune with what’s happening in the market. I think any landlord that’s not being creative and being aggressive is falling behind very quickly. It is about occupancy right now and kind of weathering the storm.” Indeed, Ottawa is a tenant’s market, from downtown to the tech hub of Kanata, as office towers have hollowed out amid the shift to hybrid and remote work under COVID-19. The capital’s overall office vacancy rate rose to 13.6 per cent in the second quarter, according to real estate firm CBRE, up from 12.3 per cent the previous quarter. Landlords in the downtown core have been particularly hard hit, with the vacancy rate reaching 15.1 per cent in the quarter ended in June. That compares with 6.5 per cent at the end of 2019, before the pandemic struck. As a result, building owners are scrambling to offer various inducements – and bargain-hunting tenants are taking full advantage. “I think (tenants) see the opportunity in the marketplace right now, and they’re moving,” Gorman says, noting that tech firms in particular have been “very aggressive” at locking in long-term leases at favourable rates. Alan Doak, a partner at Ottawa-based brokerage Proveras Commercial Realty, agrees. Doak predicts more and more tenants in downtown properties will see “significant decreases in rental rates mixed with better and better incentive packages” as owners push to sign tenants to long-term deals, even if it is for less space than those companies occupied before. “I think we’re just starting to see a real highly competitive environment evolve amongst multiple (office) towers,” Doak says. Most vacant class-A office space in the core is now concentrated in a handful of properties, including Constitution Square, the Sun Life Financial Centre, the World Exchange Plaza and 55 Metcalfe St., notes longtime broker Shawn Hamilton, another partner at Proveras. But incentives could spread to other properties in the core as short-term lease extensions signed during the pandemic start to expire and flood the market with even more vacant space, Doak adds. “We don’t actually know how low people will go,” he says. “We haven’t seen the bottom yet.”