East-end market feeling the pinch with vacancy rate more than doubling in last year

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When Mxi Technologies vacates more than 50,000 square feet of class-A office space at Blair Place in November, an east-end commercial real estate market that has already seen its vacancy rate soar from eight to more than 18 per cent over the past year will take another hit.

A rate change that drastic in the east should raise eyebrows. Far less dependent on one single business sector than Kanata and with far less commercial space than the city’s central core, Ottawa’s east-end market traditionally hasn’t experienced a lot of stomach-churning ups and downs.

But Bruce Wolfgram, a vice-president at Primecorp Commercial Realty, said the east has been trending in the wrong direction lately. Calling the area “a hidden gem,” he said the lack of an anchor industry such as the tech sector means the east end often gets overlooked when tenants go shopping for new digs.

“The bottom line is, there’s good space out there, but traditionally there just hasn’t been the willingness of some companies to consider the east,” said Mr. Wolfgram, whose firm has been trying to sublease nearly 14,000 square feet of class-A space at Morguard’s office complex at 1601 Telesat Court for more than a year with no success.

“Industries cluster in certain areas. There needs to be cluster started in the east end to get things rolling.”

Still, other commercial brokers stress that the numbers over the past 12 months, while alarming at first glance, must be put into context.

While the east’s vacancy rate is currently higher than the rates of 13 per cent in the core and just under 12 per cent in Kanata, its figure skyrocketed when Bona Building and Development Co. finished its 10-storey office tower at 140 Jeanne Mance St. near the Vanier Parkway last year.

The building, which still sits empty waiting to be leased, features nearly 275,000 square feet of class-A space – a hefty chunk of real estate in a market with about 4.6 million square feet of total inventory. When the Bona building is removed from the mix, the east’s vacancy rate dips to about nine per cent.

“I think the reality is that vacancy rate can be by and large explained by the introduction of the Bona building,” said Shawn Hamilton, vice-president and managing director at CBRE in Ottawa. “If we strip Bona out of the equation, we can see that the east end is still below Ottawa’s suburban vacancy rate, it’s below the national suburban vacancy rate. I don’t think the east end has a problem.”

Despite a flurry of speculation that the federal government will eventually move to 140 Jeanne Mance St., Public Works told OBJ last week the feds have no plans to rent space in the building any time soon.

“No discussions on office space have taken place between (Public Works) and the building owner at 140 Jeanne Mance Street,” spokesperson Jessica Kingsbury said in an e-mail. “At this time, there is no competitive process for acquisitions of space in that area.”

Bona has remained tight-lipped about its plans for the new Vanier property. Calls to the company’s president, Robert Vocisano, were not returned, but brokers told OBJ the firm has not been actively pursuing potential tenants.

Because the east end has a smaller inventory than the west or the core, moves such as Mxi’s tend to skew rates upward quite dramatically and make the situation look worse than it really is, some observers say.

The Ottawa-based software company, one of the few tech firms located east of the core, has occupied space in various buildings at Blair Place for two decades. It announced earlier this year it was moving to a single property at 175 Terence Matthews Cres. in Kanata.

“A change like an Mxi statistically will have a bigger impact than if it happens in the downtown core at 16 million square feet,” Mr. Hamilton said. “Mxi moving to the west I think is a situational thing. I don’t think that they’re leaving the east because it was horrible, they’re leaving the east because they were in a complex (where) they were fragmented and dispersed.”

He acknowledged the area is in tough trying to attract firms in growth sectors such as high tech, which tend to prefer Kanata’s “campus setting.” But he said he thinks light rail will be a “game-changer” for landlords when the Confederation Line starts carrying commuters to Blair station in 2018.

“This will in essence extend our downtown core to the east,” he said, adding he believes light rail will allow prime commercial spaces such as the Blair Park of Commerce and 1900 City Park Place to compete for tenants with buildings in the core. “People always talk about, is there going to be a migration from the core? I think if there is going to be a migration coming from the core, we would see it coming from the core to the east along the LRT. That could spur new development there.”

Not everyone is convinced. Oliver Tighe, managing director of Colliers International’s valuation and advisory services branch in Ottawa, said light rail might entice a few companies to take a second look at properties in the east, but there will be no mass influx of new tenants.

“If you have a choice, you’re likely to look downtown or at the fringe core” where access to the airport and other amenities are better, he said. “There’s not a compelling story to be in (the east end) unless you’ve traditionally located in Orleans or east Ottawa. It’s a case of, there are just better opportunities elsewhere.”