Reversal of vacancy trends in the Greater Ottawa office market taking shape
In its Real Estate Market Study, Newmark Knight Frank Devencore reported that over the latter half of 2010 and into the first months of 2011, the complexion of the Greater Ottawa market begun to change fairly dramatically. The decision by Public Works to vacate one million square feet in the city’s core, combined with the 450,000 square feet of downtown space that Economic Development Canada will be leaving by year-end will likely cause vacancy rates to rise dramatically.
In the first quarter of this year, downtown Ottawa’s Class “A” office vacancy rate stood at 5.6 per cent, while the Class “B” rate was at 2.1 per cent. As recently as the end of 2008, combined Class “A” and Class “B” vacancy rates were as low as 1.6 per cent.
“By mid-2012 we may see vacancy rates in the 8 per cent range,” said Denis Shank, Vice-President and Broker at Devencore Real Estate Services Ltd. “This increase will fundamentally shift the landlord-tenant dynamic downtown, providing tenants with considerably more leverage than they have had in many years. Further, asking rental rates may begin to soften.”
The Kanata market is also about to undergo a significant transformation. The 2008-2009 recession caused vacancy rates in the region to soar into the 20 per cent range, but the federal government’s recent purchase of he Nortel campus will change that by forcing some major tenant moves. These organizations will be seeking space in Kanata, which should give the real estate market a much needed shot in the arm, as these relocations should drive the absorption of much of the available Class “A” space in the area.
“The changes taking place in both the downtown and Kanata markets will not occur overnight, and will likely unfold over the next two to three years. But the corporate real estate market is becoming more dynamic by the minute, so tenants are best advised to evaluate their space needs and priorities well in advance or any lease renewal or possible expansion or relocation,” said Jeffrey Shave, Senior Advisor at Devencore Real Estate Services Ltd.
Across the rest of the country, vacancy rates have continued to decline as the economy has strengthened. The overall vacancy rate in Class “A” and Class “B” buildings in Canada’s major cities fell from 7.1 per cent to 6.8 per cent over the last six months of 2010, even as the total inventory of Class “A “and Class “B” office space increased. Should the economic recovery continue on its current path, Newmark Knight Frank Devencore expects that office vacancy rates should continue to decline across most of the country in the months ahead, and rental rates in some cities will likely begin to rise.