Big tenants are starting to flex their muscles, driving local landlords to fight tooth and nail for their tenancies. It’s true that we haven’t seen vacancy rates yet climb into the mid-teens. But after more than a decade of operating in a downtown market with only two- to three-per-cent vacancy, the presence of several large blocks of space in all price points has created some sorely needed competition.
Those companies and organizations looking for 10,000 square feet or more are operating in a strong tenant’s market.
The first signs that real activity is afoot occurred in the second quarter, when several large tenants finalized transactions that had been simmering for some time. The three most notable were KPMG’s decision to move to Morguard’s new tower at 150 Elgin St., Borden Ladner Gervais’ choice to remain at World Exchange Plaza and Ernst & Young’s planned relocation to 99 Bank St.
With many downtown landlords operating from leasing strategies based on what’s been working for the past 15 years, it is becoming clear that they haven’t yet come to grips with how to lease space in a market with so much choice. No longer can they assume that a lack of available options will force tenants to renew their leases at sky-high rents, nor can they count on leasing all of their space to an ever-expanding federal public service. Times have changed, and the new realities of the current market call for creative and innovative solutions to keep their buildings full.
That must start with their wallets. Whispered mentions of deep, last-minute rent cuts, major contractual concessions and huge cash allowances have started to circulate. More is likely to follow as landlords and listing brokers with big spaces to fill realize immediate action is required to win deals (or keep sitting tenants), since so much prime space is continuing to sit empty after more than a year.
The Bank of Canada is still lurking in the shadows with a requirement in excess of 300,000 square feet, but rumours are circulating of an impending deal for the former Export Development Canada space at 234 Laurier Ave. W. As well, the Department of Justice is on the street looking for 80,000 square feet. While there aren’t many options to consider, the unsuccessful proponents face the possibility of a protracted period without a tenant. The bidding will be fierce.
Darren Fleming is managing principal of Cresa Ottawa.
TOP Q2 LEASING TRANSACTIONS
Genband 500 Palladium Dr. 70,000 sq. ft. (new lease)
BLG LLP 100 Queen St. 62,500 sq. ft. (renewal)
KPMG 150 Elgin St. 37,500 sq. ft. (new lease)
Ernst & Young 99 Bank St. 27,600 sq. ft. (new lease)
Hewlett-Packard Swansea Crescent 22,600 sq. ft.(new lease)
Allen-Vanguard 2080 Walkley Rd. 22,547 sq. ft. (renewal)