Property Biz Canada

Ottawa’s battling burbs offer alternatives to downtown

Downtown Ottawa has its perks in terms of a workplace location, but heading out to the suburbs can save an organization some money on office rent.

At last week’s Ottawa Real Estate Forum, one of the panel discussions featured Kelvin Holmes, Colliers International’s managing director for Ottawa, challenging a major office landlord for the east end and one for the west-end suburb of Kanata to say why their part of town makes the most sense for organizations looking to escape the city’s core.

Each location has own advantages, challenges

Dan Gray, vice-president of leasing for Bentall Kennedy (Canada) LP, which has about 500,000 square feet of office space in the east end, or about 15 per cent of the market in that part of town, touted the fact his jurisdiction is a quicker trip from downtown, creating less headaches for workers that might be crossing bridges — all of which are centrally located — from the Quebec side of the national capital region. He also highlighted the east end’s bilingual population, which government departments could tap for workers.

“It is a very strategic location — right off the core,” he said.

Martin Vandewouw, president of KRP Development Corp., which has about 2.5 million square feet office space in Kanata, or about half that market, had this to say: “We’ve got 14 per cent vacancy, so we’re going to have better deals.”

Holmes outlined some of the key differences between the two markets. Kanata has about 5.6 million square feet of office space, dominated by the high-tech sector. This, he said, creates much volatility as the fortunes of companies in this industry can rise and fall quickly.

The east end has around 3.8 million square feet of space, with its tenant base more diversified, leading to greater stability. The vacancy rate for east-end office buildings tends to stay within a range of two to six per cent, Holmes said, while Kanata’s has been known to surpass 20 per cent.

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Colliers’ recent office market report showed Kanata’s office vacancy rate at 14.4 per cent in this year’s third quarter, up from 11.8 per cent one year earlier. The east-end vacancy rate was 4.7 per cent, down from 5.3 per cent the year before.

In both cases, the report showed money can be saved by going to Kanata or the east end instead of downtown. The average rent downtown was $23.51 per square foot annually in the last quarter. It was $15.50 in the east end and $12.29 in Kanata.

Brent Arseneau, leasing manager for Colonnade Management, which has about 420,000 square feet of office space in Kanata and 250,000 square feet in the east end, said “there’s benefits to both sides.”

He acknowledged most of the east end’s office supply is geographically closer to downtown than Kanata, but the latter is more of a “self-contained” community.

“Kanata has become its own centre,” Arseneau said. “I mean you honestly can live and work there — and play.”

Vandewouw pointed out how Kanata is the home for Scotiabank Place, which hosts Ottawa Senators games, major concerts and other events.

Pitfalls of tech-based tenant base

He nonetheless acknowledged the challenges he faces by renting most of his space to technology companies, which are struggling as of late.

“At the end of the day, our business is all about tenants paying the cost of our building,” he said. “It all boils down to how life is for them. Right now, life is uncertain for them and it causes a lot of uncertainty for our business.”

Holmes pointed out that Research In Motion Ltd., the struggling maker of BlackBerrys, occupies about 600,000 square feet in Kanata. Vandewouw said he expects RIM to “do OK.” He said major cutbacks for the company are more likely at its headquarters in Waterloo, Ont., than in Ottawa, which has become its main R&D location.

The federal government could be among the tenants seeking out cheaper rents in Ottawa’s suburbs if it can find facilities that meet its standards. While there has been some recent movement of government operations to Kanata, Arseneau said he doubts it was the start of a significant trend.

“Although PWGSC (Public Works and Government Services Canada) wants a great deal for the taxpayer — rents for much lower than they’re going to get downtown — the user group also has some say in the government,” he said. “Ultimately, it comes down to, ‘Are my people happy? Is the union happy? Are we getting travel times within our limits?’ And I’m not sure that we’ve seen yet that (the government’s operations in Kanata) are a success.”

Gray, meanwhile, said he doesn’t anticipate a “material change” in the east-end office market over the next year and “certainly not in the negative.”

Vandewouw was not as positive about Kanata: “I think there’s going be some vacancy over and above what you see today. I think there’s going to be a couple of high-tech companies that aren’t going to make it or are going to downsize.”

Commercial real estate’s contribution to economy

The Ottawa Real Estate Forum also featured the release of data on the economic impact of the local commercial real estate sector.

Sheila Botting, national leader for real estate with Deloitte, reported that there was $2.8-billion worth of economic activity in Ottawa related to the construction, selling, leasing and management of commercial properties last year.

It was found that it was directly responsibility for 17,800 full-time job equivalents for a combined $880 million in wages.

Commercial properties also generated $611.8 million in municipal revenue for the City of Ottawa in 2011, mainly through property taxes, the Deloitte report showed.

Botting said it was the first study of its kind so no previous data was available for comparison.

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