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Office conversion eases Ottawa’s Class B woes

Jan 5, 2024 | Public | 0 comments

Office conversion plans helped trim downtown Ottawa vacancy rates in the fourth quarter of 2023. Colliers Canada reports 338,000 square feet of positive absorption citywide during the last three months of the year, with most of that activity occurring downtown and in the Kanata node of the suburban market. The overall vacancy rate climbed to 12.2 per cent, up 99 basis points (bps) since September, but downtown enjoyed a 116 bps drop in vacancy, ending the quarter at 11.2 per cent.

More than 300,000 square feet of Class B office space has been withdrawn from the downtown inventory as two separate commercial landlords pursue plans to replace it with housing. Montreal-based Group Mach has now set aside earlier plans to reposition 110 O’Connor Street, a 14-storey 183,000-square-foot tower located about 500 metres from Parliament Hill, and is now looking to demolish the 1970s-era structure and replace it with new purpose-built rental housing. Meanwhile, Gatineau-based Katasa Group in partnership with Sudbury’s ARG Devco acquired 130 Slater Street in the summer of 2023 with plans to convert the 13-storey, 127,000-square-foot building into multifamily rental suites.

“This transformation reflects a strategic response to Ottawa’s evolving needs, enhancing the supply of urban rental housing units and contributing to the revitalization of downtown Ottawa,” Colliers analysts observe.

The O’Connor Street property, which previously housed the Department of National Defence, had been entirely vacant, while the 58-year-old 130 Slater Street was two-thirds empty. Removal of the two buildings from the office stock helped push the Class B vacancy rate down to 15.5 per cent downtown, a 470 bps decrease from the third quarter.

The downtown Class A vacancy rate now stands at 8.4 per cent with the availability rate at 10.5 per cent and average asking net rent at $25.47 per square foot (psf). In contrast to Class B, there was nearly 20,000 square feet of negative absorption over the course of the quarter.

The citywide office occupancy rate is pegged at about 56 per cent of pre-COVID levels, with the downtown rate at 52 per cent. This lags the rates in Vancouver and Toronto — at 68 per cent and 62 per cent respectively — and was recently flagged as a cause for concern in the Ontario Auditor General’s report on the Ottawa Convention Centre.

“Ottawa continues to lag all major Canadian office markets in its return-to-office rate despite the federal government’s directive for its employees to be in the office two to three days each week since January 2023,” Colliers analysts note. “It’s noteworthy that areas with abundant amenities and suburban business parks have seen year-over-year increases in occupancy.”

Citywide, the average asking net rent was $17.44 psf as the year ended, posting a 2.2 per cent year-over-year increase since Q4 2022. The Kanata sub-market recorded 72,111 square feet positive absorption, with 56,000 square feet of that in the Class A inventory. Kanata commanded average asking net rents of $14.36 psf for Class A space, with Class B just slightly lower, at $14.13.

The post Office conversion eases Ottawa’s Class B woes appeared first on REMINET.

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