Much of the attention in Ottawa’s office market has focused on the downtown in recent years thanks to declining vacancy rates, tech firms heading into the core and the imminent opening of the first phase of the city’s light rail transit line.
That has prompted speculation about where the next major office tower might be constructed. Much of that attention focuses on Morguard Corp. (MRC-T), the largest commercial property owner and manager in the National Capital Region. However, when Morguard CEO K. Rai Sahi speculates about his next major project, he looks a bit east of the core.
To the expansive St. Laurent Shopping Centre property.
“Office? We are looking at St. Laurent shopping centre,” Sahi told RENX during a discussion this week in Ottawa, where he opened Morguard’s new downtown two-tower, dual-branded Hilton hotels. “We have some excess land there. Now, with the train being there we could build an office there, or a combination with an apartment building; we could even build another hotel there.”
“Major development opportunity” at St. Laurent
Sahi didn’t say a new office building is imminent — despite the fact there have been no major new downtown towers in five years. However, he made it clear St. Laurent is getting a lot of scrutiny as Morguard, and most other retail property owners, consider ways to maximize density at these assets while also driving new traffic to their doors.
“Major development opportunity at St. Laurent is our focus,” Sahi said. “(The question) is, what do we want to do?”
This is part II of our interview with Morguard executives. See also: Morguard opens ‘crown jewel’: Two Ottawa Hilton hotels
St. Laurent is Ottawa’s third-largest mall, with about 870,000 square feet of gross leasable area, about 180 stores and services and an existing bus transit hub. Its expansive parking lots contain more than 4,000 spaces and exit onto the city’s main thoroughfare, Hwy. 417.
It also sits just a half-dozen LRT stops from the downtown core.
“With the train being there, St. Laurent is really just part of downtown,” Sahi observed.
LRT will also “open up” suburbs
While part of the raison d’être for Ottawa to build its LRT is to move people more efficiently in and out of the core, Sahi said it has another major effect seen in every city which has instituted rail transit, including Vancouver, Toronto and Montreal.
“There is a double edge to that,” he explained. “You see it in other parts of the country, Vancouver, Montreal. When the transit stops come in, it opens up the suburbs. You see, now it is easier for somebody to work, say, at a place like St. Laurent. Take a train and you don’t have to work downtown.
“That opens up a lot of supply because there is a lot more land in the suburbs. We’ve seen that in Toronto and Vancouver. Vancouver has gone 30 miles out, and Toronto has gone past Hamilton.”
As for when such a project might happen, Sahi wasn’t willing to commit. While Ottawa’s office market has steadily tightened to 7.5 per cent according to the latest numbers from CBRE, rents have declined slightly.
In the last quarter, average net asking rents were at $23.19 per square foot for class-A space, down 63 cents, dampening any developer enthusiasm for a major office build.
“Presently, the rents are not going up, they have come off a bit, so it is the wrong time to actually bring a new project, notwithstanding it takes five years from start to finish,” Sahi said.
Morguard’s success at Performance Court
However, Sahi has taken chances in the past. Morguard built the downtown building which now houses the Ottawa CBC broadcast centre. It then took a larger leap in building the 21-storey, 360,000-square-foot, class-A Performance Court on Elgin Street, which completed in 2014.
“That we built on spec. I took a chance. We had one tenant. We kind of had to make a decision to go for it, and I made the decision,” Sahi said, noting that in a city where about 60 per cent of office space is occupied by the federal government, this building has no government tenants.
“That is essentially a non-government building. Shopify came up, CIBC came and the accountants, KPMG. Before we knew it, it was 100 per cent leased.
“Now, will I do another one? I don’t know yet.”
However, he agrees Morguard is probably best-positioned to take the leap when an opportunity presents itself. As numerous other major landlords have sold properties in Ottawa — he mentions investors such as Brookfield, CPPIB and OMERS — Morguard has been steadily expanding its ownership in the market.
More than five millon square feet
Morguard currently owns more than five million square feet of commercial property in the National Capital Region (including neighbouring Gatineau), as well as four golf courses and other property. Morguard also manages other buildings, and Sahi says it will buy more if the property, and the price, are right.
“We at Morguard have chosen Ottawa as one of the most important cities where we want to be. So, we have not just medium-term, but a long-term plan to continue to grow. We look at everything somebody else will try to sell.”
That means it has several options for possible redevelopment or densification, including an entire city block right in the core bounded by Bank, Slater and Laurier Streets just steps from Parliament Hill.
As Sahi says, “we do have available land, in a bunch of locations. So if some kind of opportunity comes, then we would.
“In the long run, there has to be something new built, because some of the government buildings are getting pretty old.”