Colonnade BridgePort, Ottawa’s largest commercial property manager, is offering an innovative approach to the post-COVID return-to-office discussion to help tenants/employers find a way forward that works.
“For Q4 and going into Q1 (2022), a lot of companies are going to be coming back to market, looking to shift space and asking landlords, ‘How are you going to help me?’ ” said Brent Arseneau, director of office leasing for Colonnade BridgePort.
This led the firm to recently develop a series of educational articles and overhaul a vacant 4,200-square-foot space at 81 Metcalfe in downtown Ottawa – a class-A, boutique-style, 12-storey property – as an example of the ideal post-COVID workspace.
The marketing campaign came out of discussions with partner Marlin Spring, a Toronto-based real estate investment firm. In January, Colonnade BridgePort helped Marlin Spring close 81 Metcalfe, its first Ottawa acquisition.
“Our goal for this campaign was to put together all the key insights we had gathered in a way we could share with the community, industry partners and tenants,” said Lindsay Childerhose, the driving force behind the campaign and Colonnade BridgePort’s marketing co-ordinator.
Consider how people want to work
Childerhose and Arseneau agree what a return to the office will look like will vary depending on the employer, but both are positive the market will return.
“I am just hopeful that tenants, before returning to market, will give some thought to how their employees work and what they want their corporate culture and business to feel like,” Arseneau said.
“The ideal mix (of in-office and remote work) is going to require integration at a higher level to consider what will attract and retain the best employees.”
When asked to provide his summation of current market conditions in the nation’s capital, Arseneau breaks the local market (Ottawa and the National Capital Region) into two zones.
First is Kanata (or West Ottawa), home to hundreds of high-tech companies, including the branch operations of multinationals. Second is downtown, which is dominated by the federal government, but is also home to a growing roster of tech companies interested in smaller blocks of space.
“In Kanata, we are seeing a return to work – companies with a link to the U.S. are considering coming back to work fairly immediately,” Arseneau said.
“Long-term leases are being signed. Companies that are taking new space are trying to take advantage of spaces that were already a step beyond as open, collaborative spaces.”
Other tenants with existing space, he adds, are looking to refit versus an extensive overhaul.
Up the class standard
He considers this trend in Kanata as a reasonable indicator of what might happen two quarters out in the downtown market.
Many smaller downtown tenants – employers in the 1,500- to 5,000-square-foot range who often lease class-B space – temporarily exited the market to cut their leasing costs but intend to return.
Many of these tenants are considering what kind of space will best suit their needs in a world of hybrid work where safety may still be a concern. This has given landlords – in particular, those with class-B space that may have been dated and tired – a window of opportunity and the impetus to re-invest and update their properties.
“Hopefully, the entire B class will take the opportunity to up themselves to the standards of the B-pluses,” Arseneau said. “All new tenants should be concerned about, not just furniture systems, but air quality, air circulation and all these other issues that came up during the pandemic.”
The big tenant in downtown Ottawa is of course the federal government, a significant user of class-B space.
Based on numbers presented at October’s Ottawa Real Estate Forum, 90 federal government departments occupy some 42 million square feet in the National Capital Region (this includes neighbouring Gatineau on the Quebec side of the Ottawa River). Of this, 35 million square feet is office space, spread across 315 locations.
This footprint is equal to about half of all the private-sector inventory on the local market.
Rethinking the GCworkplace plan
“The government was the only one who didn’t stop doing deals all through the pandemic,” Arseneau said.
Long before the pandemic, the federal government had in place its GCworkplace office plan to reduce its overall footprint across the country by 25 per cent.
That plan did incorporate the ideas of more collaborative zones and moveable areas, but the relatively limited square footages per worker associated with these plans no longer fit a post-COVID world.
Arseneau expects the federal government to revaluate how its space is used and increase the square footage per person over the next 12 to 24 months.
“There are a lot of smart people at the federal government,” Arseneau said. “It may take them a little longer to do the analysis, but they will get to where they need to be.”
CBRE sees “beginning of a changing tide”
In its recent Q2 report, CBRE reported “the important role that in-person interactions play is becoming increasingly apparent and, combined with the recent successes in controlling the pandemic, including Canada becoming a global leader in first-dose vaccination rates, this is translating to increased office activity across the country.”
For Ottawa, CBRE found that, “primarily driven by the suburban market, overall office vacancy continues to rise in Ottawa and increased by 20 bps to 9.8 per cent this quarter. Of note, this is the smallest vacancy increase since the start of the pandemic and the central market experienced positive net absorption, another first.”
Sublease vacancy also declined by 70 bps quarter-over-quarter, to now represent only 14.4 per cent of the total vacant office space, the lowest it’s been since Q2 2020.
“In preparation for the return to office, landlords are investing in their properties by adding model suites and updating common areas. These proactive measures will be key to attracting and retaining tenants as Ottawa reopens in the coming months,” CBRE reported.