Greater Ottawa office vacancy rate poised to rise significantly

In its Real Estate Market Study, Newmark Knight Frank Devencore reported that the office vacancy rate in downtown Ottawa should rise considerably over the next 2-3 years, opening up a range of opportunities for tenants that have not existed for most of the past decade. The possibility of new office towers being built for the private sector, coupled with the intention of Public Works and Government Services Canada (PWGSC) to vacate a substantial amount of its space downtown, is driving this shift in the market dynamic.

Through the first half of 2011, vacancy rates in Class “A” buildings stood at 4.0 per cent, and approximately 395,000 square feet was available for lease or sublet. Class “B” vacancy rates registered a very low 1.8 per cent, and less than 150,000 square feet was available.

“We anticipate that vacancy rates in downtown Ottawa could double–to 6 per cent or higher–over the next couple of years,” said Don Marks, Director, Advisory and Corporate Services for Devencore Real Estate Services Ltd. “As a result, rental rates should soften and tenants will be presented with a greater range of opportunities. Any increase in vacancy rates, however, may be tempered by the degree to which federal buildings are taken off the market for retrofitting.”

Combined Class “A” and Class “B” vacancy rates in Kanata held at 15 per cent mid-year, down slightly from 16.3 per cent at the end of 2010. These vacancy rates may soon fall, however, as two major tenants of the Nortel Campus–Ericsson and Avaya–recently announced that they would be moving their operations to Kanata, and collectively absorbing approximately 300,000 square feet of space.

“The accelerated space absorption in Kanata being driven by the Nortel exodus may be a temporary and limited phenomenon,” Mr. Marks cautioned. “Nevertheless, over the short to medium term, tenants seeking leasing opportunities here will have to research emerging market trends carefully.”

Across the rest of Canada, corporate real estate markets have remained relatively healthy in 2011. The overall vacancy rate in Class “A” and Class “B” office buildings in Canada’s major cities dropped from 6.8 per cent to 5.4 per cent over the first half of the year, and total vacant space fell from 14 million square feet to just over 11 million square feet.

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