Ottawa Office Market Report2014/10/14 · The East submarket is the smallest component of the Ottawa office market, comprising only 9.5 percent of office space in the city. Vacancy

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OttawaOffice MarketReportTHIRD QUARTER 2014

HISTORICAL VACANCY AND FORECAST

CURRENT TENANT DEMAND

With the last year’s high vacancy, there’s been a drop in asking rental rates and associated net effective rents (NERs) in all classes of office space. As a result, tenants are taking advantage of the market conditions and are moving into into previously unaffordable buildings.

Initially, the increased vacancy in the downtown was driven predominantly by the downsizing of the Federal Government. Now, as tenants take advantage of the current soft market conditions, the growing vacancy is the result of tenants relocating. In some cases, the movement of tentants to different classes of office space within the downtown allowed for an increase in efficiencies, which in turn, result in tenants leasing less space. This indicates that moving forward, the private sector within the downtown is expected to have an ever increasing influence on the CBD.

MARKET OVERVIEW

The low number of deals completed in the third quarter clearly indicates there’s continued uncertainty within the Ottawa market. However, with a minor decrease in the overall vacancy rate to 10.0 percent, signals a start of a recovery. A large decrease in vacancy in Kanata, now at 11.8 percent, down from 16.1 percent in the second quarter, has contributed to this change. The type of activity that has been occurring in Kanata represents the continued improved activity in the market, as impacted by the high-tech sector, particularly companies that need manufacturing and office space. The positive absorption witnessed within the submarket is due to 5050 Innovation Drive no longer being marketed as available.

INVESTMENT MARKET

Ottawa has seen a steady growth in the role of private investors, even within the last three years. The current financial market conditions have made mortgages more accessible, resulting in a rise in the number of private investors over recent years.

Individuals and companies who are looking to invest in Ottawa are searching for high-quality assets. With few assets of this type on the market in Ottawa, investment activity has remained relatively low.

Private investors tend to be active in Ottawa in regards to single properties, however institutional investors continue to dominate in regards to large-scale purchases or portfolio sales. The most notable investment transaction of this quarter is the sale of the Standard Life Insurance portfolio to Manulife Financial. This $4 billion sale of the business operations and platform included a number of real estate holdings across Canada, with a number of industrial and office assets in Ottawa. This sale indicates that high-quality assets are still highly sought-after across Canada, including Ottawa.

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Downtown Vacancy Rate Projected Downtown Vacancy Rate

Ottawa Overall Vacancy Rate Projected Ottawa Overall Vacancy Rate

Asking Rental Rate Projected Asking Rental Rate

PREDICTIONS

2014 Q3 2014 Q2 TREND

Office Inventory * 37,288,530 37,288,530

Net Absorption 212,634 (144,777)

Vacancy Rate 10.0% 10.6%

Average Asking Net Rent ** $17.25 $15.25

Average Additional Rent $17.50 $14.50

* There are 460 office buildings surveyed in Ottawa ** Average Asking Net Rent is calculated using a weighted average

OFFICE MARKET SUMMARY

OTTAWA MARKET OVERVIEW

MARKET SUMMARIES

Downtown 1

Fringe Core 2

East 3

South/Airport 4

West 5

Kanata 6

GLOSSARY 7

FORECAST ASSUMPTIONS 7

TABLE OF

CONTENTS

SECOND QUARTER 2014 1

TRENDS

NOTABLE LEASE TRANSACTIONS

TYPE ADDRESS APPROX. SIZE (SF)

1 Renewal 160 Elgin Street 13,636

2 Renewal 160 Elgin Street 12,587

3 Renewal 360 Albert Street 12,950


5 New Deal 71 Bank Street 3,073


7 New Deal 50 O’Connor Street 1,400

8 New Deal 220 Laurier Street 1,375


Property Location

NOTABLE SALE TRANSACTIONS

There were no significant sale transactions this quarter in the Downtown submarket.

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The Downtown submarket is the principle office node in Ottawa, comprising 43 percent of office space in the city. A number of federal government offices and the majority of the private sector facilities are located within this area.

◊ Vacancy downtown continues to rise in Q3, from an overall of 9.5 percent in Q2 to 9.9 percent in Q3.

◊ Class B and C buildings have seen a consistent growth in vacancy whereas Class A buildings have witnessed a minor decrease, This supports the concept the Class B and C tenants are taking advantage of current market conditions and are moving into space that was previously unaffordable.

◊ Although the downtown office market was previously dominated by the Federal Government, new trends, including Workplace 2.0, have meant that the role of the Federal Government is shrinking, and the private sector is expected to play an increasing role in market activity. Still, the Federal Government will continue to remain the wildcard.

◊ Tenants continue to value high-quality assets, as illustrated by the Class A trends, which have seen a decrease in vacancy.


DOWNTOWN

PREDICTIONS

DOWNTOWN 2014 Q3 2014 Q2 TREND

Office Inventory 15,995,156 15,995,156

Net Absorption (69,550) (110,669)


Average Asking Net Rent $21.25 $20.50


2SECOND QUARTER 2014


FRINGE CORE

TRENDS

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PURCHASER PRICE ADDRESS APPROX. SIZE

3.David Hollingsworth Professional Corporation

$1,350,000 176 Bronson Avenue 4,521 SF



1. New Deal 240 Bank Street 21,000

2 New Deal 979 Bank Street 18,900

3 New Deal 400 Cooper Street 12,000

UPCOMING NEW SUPPLY

ADDRESS CLASS FLOORS TOTAL OFFICE AREA (SF) DEVELOPER SCHEDULED COMPLETION

4 Lansdowne - 979 Bank Street A 5 100,000 Minto Q3-2014

5 1625 Vanier Parkway A 10 291,518 Bona Building and Management Company Q3-2015


UPCOMING NEW SUPPLY

Property Location

The Fringe Core submarket in Ottawa is comprised of a number of neighbourhoods, most notably the ByWard Market and the Glebe. The Fringe Core houses 10 percent of Ottawa’s office space, and has had a relatively low and stable vacancy rate. Tenant make-up within the submarket consists of mainly small, cost-conscious businesses.

◊ The Fringe Core submarket continues to have the lowest vacancy rate in Ottawa.

◊ The majority of Ottawa’s non-traditional office space is found in the Fringe Core. However, the available spaces within this market are often smaller, making it difficult for some tenants with larger space requirements.

◊ Large pockets of space continue to be sought-after within the Fringe Core, as illustrated by the notable lease transactions that were completed during Q3.

◊ The many available amenities and housing options have been key to attracting those tenants seeking to achieve a work-life balance.

PREDICTIONS

FRINGE CORE 2014 Q3 2014 Q2 TREND


Net Absorption 15,327 19,409






EAST

TRENDS

UPCOMING NEW SUPPLY


3. Innes & Tenth Centre - 4473 Innes Road B 4 32,900 Parthenos Developments Q1-2015

UPCOMING NEW SUPPLY


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1. New Deal 1400 Blair Place 6,800

2. New Deal 4471 Innes Road 5,260

The East submarket is the smallest component of the Ottawa office market, comprising only 9.5 percent of office space in the city. Vacancy within the submarket has remained relatively stable. However, the region continues to struggle to attract new tenants to the area.

◊ The East submarket continues to struggle to attract new tenants, especially as overall soft market conditions allows for tenants to consider previously un-affordable areas, particualrly downtown.

◊ The Federal Government has always been a key player in the east due to its preference to located close to the bilingual workforce.

◊ The private sector has never been a large player in the East submarket, therefore the office space being vacated by the Federal Government will not be absorbed as readily.

◊ Future LRT stations in the East could draw new tenants as they reassess the region as a potential location.

PREDICTIONS

Property Location


There were no significant sale transactions this quarter in the East submarket.

EAST 2014 Q3 2014 Q2 TREND








SOUTH/AIRPORT


There were no significant lease transactions this quarter in the South submarket.

TRENDS


UPCOMING NEW SUPPLY


4. The Chambers of Prince of Wales - 2200 & 2210 Prince of Wales A 3 30,000 Springcres Q4-2014/Q1-2015

5. 200 Kennevale Drive B 3 12,000 Nescon Development Ltd. Q3-2014

UPCOMING NEW SUPPLY

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The South/Airport submarket is the second smallest of the Ottawa office markets, housing 9.8 percent of the city’s office space. Vacancy within the submarket has remained relatively unchanged resulting from continued renewals, however, the submarket is struggling to attract many new tenants to the area..

◊ Vacancy within the submarket remains relatively stable, resulting primarily from the minimal leasing activity, with few “new deals.”

◊ Transportation routes to and from office nodes within the South submarket face serious congestion issues at peak times, which may affect the market’s ability to appeal to tenants.

◊ Potential for new development associated with the MacDonald Cartier International continues to be the wildcard for the South submarket. Currently, demand for hotels within the area is high, which could result in demand for ancillary office services in the area.

PREDICTIONS

Property Location


PURCHASER PRICE ADDRESS APPROX. SIZE (SF)

3. David Properties Holdings Inc $6,800,000 2400 St. Laurent

Blvd 31,033

2014 Q3 2014 Q2 TREND


Net Absorption (11,703) (7,545)






WEST

UPCOMING NEW SUPPLY


7. Westboro Connection - 319 McRae Avenue A 6 115,000 Bridgeport Realty Q4-2015

The West submarket is one of the larger office markets in Ottawa, comprising 12.4 percent of total office space available in the city. Although vacancy within the region remains high, amenities found in the area help create demand for space.

◊ The West market, particularly the Westboro and Hintonburg neighbourhoods, continues to attract companies looking for younger talent due to the surrounding amenities, as illustrated by the 0.5 percent decrease in vacancy from Q2 to Q3.

◊ As shown by the relatively fast pre-leasing on 319 McRae Avenue (the Westboro Connection), tenants are keen to take advantage of new Class A product coming online.

◊ Along with the demand for Class A space, many tenants who are located to the West submarket are also willing to consider Class B and C space, especially if it is non-traditional office space, which could be appealing to their employees and clients.

Property Location


PURCHASER PRICE ADDRESS APPROX. SIZE (SF)

5. MJ Pulickal Holdings Inc $1,200,000 347 & 349 Churchill

Avenue North 2,800

6. 8891079 Canada Inc $6,700,000 3050-3054 Woodroffe Avenue 16,026


There were no significant lease transactions this quarter in the West submarket.

TRENDS


UPCOMING NEW SUPPLY

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PREDICTIONS

WEST 2014 Q3 2014 Q2 TREND








KANATA



1 New 500 March Road 115,000

2 New 84 Hines Road 8,050

3 New 360 Terry Fox Drive 13,400

The office market in Kanata is the main location for a large number of high-tech firms in Ottawa. The area has high vacancy rates, however, it is one of the most active markets in Ottawa due to high tenant demand.

◊ A number of large transactions during Q3 have driven down the vacancy rate in Kanata.

◊ Large tenants continue to dictate market activity, illustrated by the quick leasing of large parcels of space.

◊ High-tech manufacturers continue to locate in Kanata given the the number of buildings that offer high-tech flex space and the opportunity to locate nearby other similar firms.

◊ There is currently a high demand for small pockets of space within the Kanata submarket, which drives up prices, whereas large pockets of space often offer lower prices per SF.

Property Location


There were no significant sale transactions this quarter in the Kanata submarket.

UPCOMING NEW SUPPLY


4. 500 March Road A 2 115,400 Broccolini Q2-2015

TRENDS


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PREDICTIONS

2014 Q3 2014 Q2 TREND







GLOSSARYAdditional Rent:Includes operating costs and property taxes, per square foot per year.

Gross Rent: Obtained when adding additional rent-to-net rent.

Headlease: Offered on the market by the landlord or property manager, whether or not the space is vacant.

Net Absorption: The net change in physically occupied space between the current measurement period and the last measurement period. It can be either positive or negative.

Sublease: Offered on the market by the current tenant, whether or not the space is vacant. The space competes with space available for direct leasing.

Weighted Average Asking Net Rent: The dollar amount requested by landlords for direct available space, not including subleases, expressed in dollars per square foot, per year.

Vacancy Rate: The amount of available space and available space to be delivered to the market within the upcoming quarter, divided by the market’s inventory base including those future deliveries. Available space is space that is available for lease, and may or may not be vacant. It is not determined whether a tenant is paying rent on the space.


FORECAST ASSUMPTIONSAbsorption was calculated using moving averages of historical absorption data and supplemented with incoming new speculative and build-to-suit developments. Forecast assumptions were based on these calculations in conjunction with market knowledge and professional opinion.

This document/email has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and /or its licensor(s). © 2014. All rights reserved. This communication is not intended to cause or induce breach of an existing listing agreement. Colliers Macaulay Nicolls Brokerage Inc. (Ontario).

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Ottawa Office Market Report2014/10/14 · The East submarket is the smallest component of the Ottawa office market, comprising only 9.5 percent of office space in the city. Vacancy