Thin pipeline of new tenants and discussions around development fee increase add uncertainty; stable activity in the Fringe area provides a ray of optimism
Ottawa, April 15, 2014 – Office vacancy levels in the nation’s capital continued to inch upwards during the first quarter of the year according to a new report released today by Colliers International. The average vacancy rate in the city reached 9.7 percent, 1.1 per cent higher than the same period the previous year. This high vacancy rate, stemming from a major reduction of the federal government’s footprint in the downtown core, is putting additional downward pressure on lease rates. Lease rates now average at $17.19 per square foot, down from $18.11 per square foot marked at the beginning of 2013.
“The weak demand for office space, especially in Class B and C properties, is pushing landlords to find creative ways to attract and retain tenants,” says Kelvin Holmes, managing director with Colliers International in Ottawa. “In addition to the greater flexibility and incentives offered by landlords to occupants, there is also a mind shift in the way properties are being marketed. There is a greater focus on the attributes of the office space and its surroundings, such as proximity to public transportation and amenities, as factors that drive and help tenants attract and retain talent.”
Ottawa Vacancy Rate/Rent Rate Current and Forecast
As office landlords across the city struggle with the current market stagnation, analysis and forecasts by Colliers do not expect the current tenant market to change its course. The forecast calls for a double-digit office vacancy rate over the next 24 months.
“The lack of foreseeable pipeline of new tenants or demand for office space, coupled with the fact that the city’s office market is dominated by only one major player, may shun investors’ appetite away from considering Ottawa as a viable investment destination,” adds Kelvin Holmes. “Furthermore, the current discussions between BOMA and the city around the increase in development charges add another layer of uncertainty that may hamper the development and re-development of properties around the city, decreasing the potential to attract new business and investment inflow.”
The Colliers Office Market Report, which provides a breakdown analysis across the city’s sub-markets, finds a ray of light in the Fringe Core. According to the report, the Fringe area remained relatively stable over the past quarter, with the vacancy rate unchanged at 6.2 percent. The attractiveness of the Byward Market is appealing to younger companies. This, coupled with the Lansdowne Park redevelopment, signal future activity in this sub-market.
> Download full report in Market Insights section.