Ottawa office market experiencing tug-of-war between private and public sectors: Colliers

The continued growth within the innovative and independent private sector high-tech industry in the Ottawa region is helping to dampen the effect on the office market caused by continuing Federal Government downsizing, according to the Q2-2015 Colliers International Office and Industrial reports on the National Capital Region.

“Ottawa stopped being just a ‘Government Town’ long ago and our Q2 results illustrate the gradual growth the high-tech sector is experiencing,” said Kelvin Holmes, managing director of Colliers International in Ottawa. “Growth in the private sector office market, particularly in high-tech, will go a long way to mitigate the impact of the Federal Government’s real estate strategy”

Colliers Ottawa Office Report

Vacancy rates across the Ottawa office market increased in Q2 to 12.4 per cent, up from 10.6 per cent in Q2 2014, a direct result of government downsizing and relocation, which, because of its magnitude, has had a domino effect on the overall office market. “On the horizon for Ottawa will be the Department of Defense leaving the downtown core, which will have a dramatic impact on the downtown office market,” Holmes added.

Two other upcoming factors are also worth watching: the October 2015 federal election, which is still a wildcard on the effect it may have on the Ottawa office market, and a number of Public Works and Government Services Canada tenders for office space within the downtown submarket, which might mitigate major office market disruptions.

The Colliers Report shows the Kanata and downtown submarkets have been most positively impacted by the growth in the private sector markets, with vacancy in Q2 2015 at 14.4 per cent, down from 16.1 percent in Q2 2014. The report says many private sector companies are planning for positive growth in the next 1 to 2 years, which would be the first sign of a true recovery since 2008.

Added Holmes, “The result of this back and forth in expansion and contraction amongst the private and public sectors in Ottawa is that a number of landlords are offering aggressive deals in order to minimize the impact of large-scale tenants, such as the federal government, leaving their buildings. The report says the current common trend in Ottawa is high interest from the private sector in conjunction with high competition from landlords.”

Colliers Ottawa Industrial Report

In examining the industrial market, the Colliers report shows vacancy in Ottawa remains low and stable during the first half of 2015, marked by a decrease in market activity compared to 2014. Minimal options in the market have resulted in many industrial tenants choosing to stay where they are, rather than going through the process of looking for new space.

“Ottawa needs to create new industrial inventory and until that happens, there is reason for caution for the remainder of 2015,” said Holmes. “There is a lack of activity, regardless of price, in this sector. This lack of action on well-located, good-quality industrial space could indicate a slowing of this market until new quality inventory is added.”

This report surveyed 1,536 industrial buildings in the Ottawa National Capital Region with a total square footage of more than 46.5 million square feet. It showed a total vacancy of just 1.5 million square feet in Q2 2015, or 3.3 per cent, a drop of 1.5 per cent from the 4.8 per cent vacancy rate shown in Q1 2015.

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