Downtown Ottawa: facing watershed change or steady-as-she goes?

There are a couple of things happening that could bring fundamental change to the commercial real estate market in downtown Ottawa.

The Ottawa Real Estate Forum, held October 11th, featured talks about two elements in particular that have developers, managers and owners of buildings in the national capital’s core watching with interest.

For one, there is the project to build a $2.1-billion light rail line, which would travel through downtown via an underground tunnel and is scheduled for operation in 2018.

As well, there are changes afoot for Ottawa’s biggest employer, the federal government, which includes job cuts, moving to better-quality buildings that are outside of downtown in many cases, and its objective of using less space per worker.

The effect of light rail

Nelson Edwards, a senior planner with the City of Ottawa, and Ronald Clarke, manager of planning with Delcan Corp., gave a presentation related to a study they are doing to generate planning ideas for downtown that would compliment the light-rail project.

Edwards said LRT “is going to change the way people travel around the city, and in particular, around downtown.”

Some broad ideas he and Clarke presented at the forum included wider sidewalks and more cycling lanes, largely the result of taking back space from dedicated bus lanes that would no longer be needed.

Clarke talked about how such improvements would create “streets that are desirable public spaces” and how this would “trigger, in turn, an investment in the land uses,” such as more retail, restaurants and residential development.

However, at a later panel discussion on the downtown office market, Bob Perkins, senior vice-president of the Taggart Group, downplayed the degree to which LRT would change things in Ottawa’s core.

“I’m not a firm believer . . . that light-rail transit will improve the lifestyle downtown,” he said. “I think we have an excellent bus system. I’m not debating the fact that light rail is great solution to congestion, to a degree. But I think Ottawa is a long way from having light rail that’s actually complementary to the streetscape. That will take a long time.”

Image from the Ottawa Light Rail website

Government changes

Those on this panel were also not convinced that changes happening within the federal workforce were something to be overly concerned about.

“Yes, there will be some shifts from old (buildings) to new, but on a net basis, I really don’t think we’re going to see a reduction (in space occupied by government),” Perkins said. “Now, we will see a slower uptake of perhaps new premises for government than we’ve seen in the past, but I see government as strong as ever. And I think we’ll wake up five years from now and understand that government will need to grow again in terms of people.”

Another portion of the forum featured Francois Guimont, deputy minister of Public Works and Government Services Canada, talking about how the government recently reduced the targeted average amount of space used per worker by about 20 square feet, and how combined with public service cuts, this will “reduce the demand for space.”

During the panel discussion, Michael Church, Avison Young’s managing director for Ottawa, compared what’s happening now to sharper government cutbacks in the 1990s.

“Who was working in the downtown core in 1993?” he asked. “Do you remember public-service strikes, whole departments coming out and running around, protesting cuts and whole departments being downsized? I have a very, very vivid memory of that, and this is nothing like that.”

A 'flight to quality'

Sandy McNair, president of Altus InSite, said the government was making a “flight to quality” in terms of its facilities, which would have little impact on Class A buildings but likely require many of Bs and Cs vacated to be “re-purposed.”

Perkins said this could spark more residential development downtown, and more service-oriented commercial development in response.

“I really think that there’s an opportunity for these older buildings to convert or to be demolished and rebuilt in a different form,” he said. “And that would really be exciting, and of course that will drive retail. That will drive the other services.”

There was acknowledgment of a “vacancy creep” happening in the downtown office market and less government inquiries about space as of late. But the overall risks of such trends were downplayed.

A recent report from Colliers International said the office vacancy rate in downtown Ottawa was 5.6 per cent in the third quarter, up from 5.4 per cent a year earlier. For Class A space specifically, the vacancy rate fell to 4.5 per cent from 5.9 per cent.

“Overall, we’re pretty happy with how things are going because with five per cent vacancy . . . the other 95 per cent of the building is still spitting out cash and paying pensions,” said Brian Wallace, Oxford Properties’ director of office leasing in Ottawa.

“Ottawa’s such a great market to hold real estate in. If anybody’s concerned and if there’s any kind of pessimistic view that it’s slow and takes a long time to lease, just try to buy a building. You can’t.”

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