Ottawa is Hot
Ottawa’s office market is blazingly active. With few exceptions, office tenant demand in 2019 across all building classes (especially Class A and B) and across all geographical submarkets continues to rise, with corresponding increases in rental rates. Locally, downtown Ottawa and Kanata are leading the pack in office space demand. Kanata, in particular, has little existing space remaining for lease. Ford Canada’s 40,000 square foot commitment has helped kick off the construction of a new building near the Canadian Tire Centre. Several other Kanata firms are following similar paths elsewhere in the west end to secure space within the next 2 years.
In 2018, Ottawa experienced its highest space absorption rate in 12 years. Leasing, principally by the Federal Government and the technology sectors, has resulted in the absorption of over 700,000 square feet from Jan-Dec 2018.
Because no new office supply was added during 2018 (i.e.., no buildings were constructed), companies who need more space and aren’t able to wait for a new building to be built — which can take 2+ years — have had to relocate to existing Class B buildings. As a result, the vacancy rate for Class B inventory has fallen too.
Zibi is Coming
By late 2019, the first commercial buildings at the “Zibi” development (located on both the Chaudière and Albert Islands between downtown Ottawa and Gatineau) will come onstream. Zibi is expected to be a huge office / residential / retail sustainable environment. Although several concerns remain, including transportation access, excitement is building in many quarters over the potential of this development.
2019 Predictions
We expect demand for office space by the public sector to dampen temporarily for the next 6 months as Ottawa gears up for the next federal election this October. However, professional service and technology firms remain active with over 400,000 square feet of tenants currently searching for space.
Although Kanata remains the traditional epicenter of high technology firms over 10,000 square feet, we are now witnessing a surge in the number of technology companies central and central-east who, even once they become large, do not wish to leave the areas in which they are established but rather find larger options in the immediate vicinity. Examples of this trend include Assent Compliance, Klipfolio, Fullscript and Shopify.
We expect to see tightening conditions continue through 2019 as little new construction is underway that isn’t already pre-leased. However, the following may contribute to a stabilization of the market in the short-term, if not a window of opportunity for tenants:
- Quicker relocation of Department of National Defence (DND) staff from downtown leased locations to their new west end Carling Campus (which was once the home of Nortel Networks). The Carling Campus has over 2.3 million square feet of office space, of which only 1/3 is currently occupied. The speed of staff transition to the new facility has to date been slow enough that the downtown market has had little issue refilling the space vacated.
- There has been talk for the past 24 months of a possible slowing down of the Canadian economy. This has yet to occur. Although recessions are part of the economic cycle, we believe that any slowing down will be tempered in Ottawa because the Federal Government needs additional staff resources and hiring will occur (election notwithstanding) regardless of a soft or hard economy.