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Research & Forecast Report OTTAWA OFFICE Third Quarter 2018 Table of Contents Ottawa Market Overview .................................................................................................... 3 Market Summaries Downtown ......................................................................................................................4 Fringe Core ............................................................................................................. 5 East ........................................................................................................................ 6 South/Airport .......................................................................................................... 7 West ....................................................................................................................... 8 Kanata .................................................................................................................... 9 Glossary ............................................................................................................................. 10 Authors ............................................................................................................................... 11 2 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Ottawa Market Overview Market Overview Over the next several years, one of the largest contributors to economic growth in Ottawa will be non-residential Market Indicators Market Q2 Market Q3 Year over Year Relative to prior period 2018 2018 Trend construction1. The city is preparing for extensive renovations of Parliament Hill’s Centre Block, an ambitious project AVAILABILITY 10.7% 10.1% managed by Colliers Project Leaders that is expected to NET ABSORPTION (157,983) 314,710 have the block closed for the next decade. Public Services CONSTRUCTION* and Procurement Canada has promised to provide alternate 402,000 402,000 tourism experiences because the Centre Block is one of RENTAL RATE** $16.70 $16.78 Ottawa’s most popular tourist hot-spots. The House of Note: *Currently under construction Commons is set to move to a new chamber located in the **Weighted Average Net West Block for the duration of the closure in early 2019. The first stage of the new Light Rail Transit system Tenant Demand experienced several delays, but the start of the $3.5 billion Ottawa’s availability rate has been declining and is now 10.1% second stage is on the horizon, with construction still overall, with the CBD availability rate at 7.0%. The suburbs scheduled to begin in 2019. As part of transit related projects, saw particularly strong absorption in the past quarter with the widening of Highway 417 will help relieve potential almost 279,000 square feet of increased occupancy; this disruption caused by LRT construction. equals almost 6.1% annualized office occupancy growth. Several large government tenders were secured this quarter, Investment Market most notably in the Downtown Core. Investment activity was strongest in the Downtown Core, Government activity shows no signs of slowing after an where 92% of this quarter’s 1,470,908 square feet was sold. At announcement that federal space is required in Ottawa’s east 945,030 square feet, the single largest transaction was the sale end. The Downtown Core has seen the largest decrease in of Minto Properties Inc.’s assets at 407-433 Laurier Avenue availability, dropping 270 basis points year over year, making West, 180 Kent Street, and 344 Slater Street to LaSalle Canada it increasingly more difficult for tenants to find new space. Property Fund. Being the largest office sub-market, it has impacted the overall market with a -110 bps change YoY. Cap rates hovered between 4.00% and 6.00% for downtown Class A properties, and ranged from 6.50% to 7.50% for Class B assets. Cap rates for suburban office properties varied between 6.25% and 7.00% for Class A buildings, and between 7.00% and 8.00% for Class B buildings. Downtown vs. Overall Vacancy 14.0% $19.00 12.0% $18.00 10.0% $17.00 8.0% $16.00 6.0% $15.00 4.0% $14.00 2.0% Rate Net Rental Availability Rate Availability 0.0% $13.00 Quarter Downtown Availability Rate Projected Downtown Availability Rate Ottawa Overall Availability Rate Projected Ottawa Overall Availability Rate Asking Rental Rate* Projected Asking Rental Rate *Weighted Average Net Rate 1. Conference Board of Canada 3 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Downtown | Ottawa The Downtown submarket is the principle office node in Ottawa, comprising 44.2% 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. 7 Trends 3 8 4 > The Department of National Defence is taking longer to move out of their space than expected. It is projected that the completion 9 5 of their move to the former Nortel campus on Carling Avenue will be sometime in 2020. 1 6 > Class A assets continue to be in popular demand with private sector tenants. Availability for these spaces has gone down 2 100 basis points since this time last year, and currently has the lowest availability in the city at 4.1%. Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend Office Inventory 18,061,393 18,061,393 Notable Lease Notable Sale New Supply Net Absorption 137,063 49,068 Availability Rate 7.6% 7.0% Notable Lease Transactions APPROXIMATE Average Asking Net Rent $17.41 $17.86 ADDRESS TYPE SIZE (SF) 1. 180 Kent Street Lease 20,793 Average Additional Rent $19.28 $18.83 2. 410 Laurier Avenue West Lease 14,211 3. 160 Elgin Street Lease 13,469 4. 200 Laurier Avenue West Lease 9,537 Historical Performance and Forecast 5. 180 Elgin Steeet Lease 9,441 12.00% 10.00% Notable Sale Transactions APPROXIMATE PURCHASER - ADDRESS PRICE 8.00% SIZE (SF) 6.00% LaSalle Canada Property Fund - 407-433 Laurier Avenue West, Availability Rate 6. $135,000,000 945,030 4.00% 180 Kent Street, 344 Slater 2.00% Street Slate Asset Management LP 0.00% and Outcore Equities Inc., 191 7. $20,000,000 206,725 Laurier Avenue West, 120 Quarter Metcalfe Street Historical Availability Projected Availability Greystone Managed 8. Investments Inc. - 250 Albert $56,000,000 184,063 Street Canadian Parks and Wilderness 9. $6,750,000 22,530 Society - 100 Gloucester Street Upcoming New Supply ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter. 4 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Fringe Core | Ottawa The Fringe Core submarket in Ottawa is comprised of a number of neighbourhoods, most notably the ByWard Market and the Glebe, making up 9.8% of Ottawa’s office space. Tenant composition within the submarket consists of mainly small, cost-conscious businesses. Trends 2 > The Federal Government secured nearly 50,000 SF of space at 4 400 Cooper Street, which will be a ten minute walk away from the future Parliament LRT station. 1 > Demand among private sector tenants has remained stable in the past quarter. > Landlords are looking to entice start-up technology groups on 3 tight budgets as the gross rents are more economical than in the 5 Downtown Core. Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend Office Inventory 4,019,032 4,019,032 Notable Lease Notable Sale New Supply Net Absorption (39,591) (12,929) Availability Rate 12.9% 11.0% Notable Lease Transactions APPROXIMATE Average Asking Net Rent ADDRESS TYPE $15.23 $14.82 SIZE (SF) 1. 400 Cooper Street Lease 18,001 Average Additional Rent $17.68 $17.29 2. 116 Lisgar Street Lease 6,700 3. 150 Isabella Street Lease 6,080 Historical Performance and Forecast 14.00% 12.00% Notable Sale Transactions 10.00% APPROXIMATE PURCHASER - ADDRESS PRICE 8.00% SIZE (SF) CMG Realty Services Ltd. - 6.00% 4. $7,430,000 47,695 AvailabilityRate 434 Queen Street 4.00% 10901989 Canada Society - 5. $3,050,000 7,655 2.00% 72 Chamberlain Avenue 0.00% Quarter Historical Availability Projected Availability Upcoming New Supply ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter. 5 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International East | Ottawa The East submarket is the smallest component of the Ottawa office market, comprising only 8.2% of office space in the city. While the region has typically struggled to attract new tenants, the future LRT may bring increased exposure and amenities. Trends > Properties along the future LRT will have an advantage in the coming years, as the light rail will bring them closer to many 3 amenities and different parts of the city. > Landlords with properties not situated along the LRT line have gone through early renewals to secure tenants in anticipation of 1 a changing market. 2 > Not only do many properties in the East boast competitive rents, but free parking is common, giving the East an edge over other sub-markets. Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend Office Inventory 3,329,687 3,329,687 Notable Lease Notable Sale New Supply Net Absorption (19,140) 34,343 Availability Rate 18.2% 17.1% Notable Lease Transactions APPROXIMATE ADDRESS TYPE Average Asking Net Rent $15.28 $15.45 SIZE (SF) 1. 1200 St. Laurent Boulevard Sub-lease 33,000 Average Additional Rent $17.84 $16.61 2. 250 Tremblay Road Lease 22,149 3. 1420 Blair Place Lease 8,376 Historical Performance and Forecast 20.00% 18.00% 16.00% Notable Sale Transactions 14.00% APPROXIMATE PURCHASER