Ottawa Commercial Real Estate Outlook 2023
February 23, 2023 3 Minute Read
Ottawa’s downtown office vacancy rate continued to inch upward in the final quarter of 2022, hitting 12.2%.
Meanwhile the industrial availability rate in Ottawa rose for a second consecutive quarter, moving up to 2.6% as new developments have come online at long last, with 414,000 sq. ft. under construction across the region at the start of 2023.
Ottawa Managing Director Louis Karam tells us how he sees the capital’s commercial real estate market shaping up this year.
I’m expecting more of the same trends in our office market in 2023. Similar to other markets, we’re seeing lower demand on the leasing side, and tenants are still struggling to bring employees back to the office.
Hybrid work is clearly here to stay – We are not having conversations about five days a week at the office. It’s two to three.
The public sector is returning to office, with a plan that is ramping up and should be fully in place by the end of March. We’ll see how that goes. Will it be two or three days? We’ll be watching that very closely.
Adding to that is the restructuring of the tech sector, which is impacting our suburban market in Kanata.
Whether it’s the public or private sector, we’re going to be on the lookout for more sublease space coming to market; and when it comes time to re-new leases will requirements be reshuffled or reduced? With tenants shedding space, what will happen with the space that’s left? Will they invest in higher-end improvements to attract employees back to the office?
The story is changing. Our focus will remain on new supply: we need industrial space. And that demand is being met: we have 21 properties and 7.6 million sq. ft. under development.
It’s a large pipeline and it’s still needed. That new supply comes with a higher rental rate.Our average industrial rental rates have been rising the past two to three years and will continue to do so in 2023.
What I’ll be watching for in 2023 is if this activity will be slowing down. Will developers’ plans change in the face of rising financing and construction costs? Will they still build on a speculative basis? With all these factors in play, will that translate into softer demand? And if so will it stop rental rate increases or delay developments?
Ottawa’s industrial sector could face a bit of a slowdown compared to the incredible pace the last few years.
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