Ottawa’s success as a business centre means it’s becoming hard to find office space here, especially the best kind. One solution is to move to the suburbs, but space there is also at a premium. And while these are nationwide trends, there’s been a lack of new construction in Canada’s capital city and the situation is more acute than elsewhere.
Although Canadian real estate markets have been cooling, generally speaking, the Ottawa residential real estate market has been comparatively strong in 2019. In fact, the sales to new listings ratio—a metric for judging the amount of demand in a real estate market—showed an 8.8% increase from February 2018 to February 2019, in contrast to a -2.4% decline across Canada as a whole. The strength of Ottawa’s property market is helped by the stability of its job market: Many people are employed by the government and in the thriving high-tech sector, ensuring a high average standard of living and low unemployment.
Ottawa’s Thriving Economy Eats Up Office Space
It will come as no surprise to learn that Ottawa commercial real estate is also currently in great demand. The Ottawa Business Journal recently reported that leases were taken on a total of 200,000 square feet of Ottawa office space for rent in the first quarter of 2019, pushing the vacancy rate in the city down to 7.5%. This is 0.5% lower than the previous quarter and represents a 10-year low.
Class-A Real Sector Even Hotter
The Class-A sector of Ottawa commercial real estate has been hit by demand to an even greater extent, with the vacancy rate in the center of town dropping from 5.7% to 4.7% in the first three months of 2019. This type of commercial real estate is the most desirable, and many companies will clearly pay the extra that it costs. In terms of rental costs, however, there was a slight easing, with the rate per square foot for Class-A decreasing by 63 cents.
Ottawa Suburbs Lead the Way
But there is another story to be told in Canada’s capital city. The vacancy rate in the downtown core actually experienced a small gain from the previous quarter—from 7.3% to 7.7%—but the number of office vacancies in the suburbs fell by 1.2% to 7.3%, which more than compensated. It seems that businesses are currently seeing the advantages of operating from cheaper, less central premises.
|Q1 2019/Q4 2018
|Ottawa City Centre||7.7%||0.4%|
There have already been reports on commercially successful Ottawa suburbs this year. The Kanata commercial real estate market is booming, as this suburb, situated about 22km southwest of the city centre, is growing rapidly in terms of both size and importance as a high-tech hub. At the end of 2018, the office vacancy rate dropped to 7.9%, after having been in the double-digits for a decade. Furthermore, the rate for Class-A commercial real estate was 6.4%, which was the lowest it had been since 2007. This increased absorption rate has spurred calls for land development in the area.
A National Phenomenon but Ottawa Is Special
There has been a country-wide commercial property market boom, and at the end of 2018, office vacancy rates had declined in almost every market. This lowered the overall average rate for Canada as a whole to 11%—though this is an abundance compared to what is currently being seen in Ottawa! As in the country’s capital, many commercial tenants nationwide have been moving to the suburbs.
In places such as Toronto and Vancouver, office space construction nearly doubled from what it was in the previous year. Apparently, however, Ottawa has seen no new commercial inventory for two whole years. There is a 1-million-square-foot warehouse facility being constructed that will be fully leased by Amazon, but there appears to be nothing else much on the horizon in the center of town at the moment.
A crucial issue that creates the situation described here in the Ottawa office market is that, unlike in some other large Canadian cities, construction of commercial property is lacking. Given Ottawa’s growing economy, it can be predicted that the vacancy rate will drop some more in the future. But maybe the calls for increased office construction will be heeded, and perhaps some rezoning enacted, and then Ottawa will be made ready for continued business success.