Ottawa's commercial real estate market to 'remain vibrant' in 2022, Re/Max says

Downtown Ottawa streets

Ottawa’s commercial real estate sector is “gaining momentum” thanks to a booming industrial market and a retail industry that’s roared back to life in recent months as pandemic-related restrictions have lifted, according to a new report.

After topping $3.8 billion in a record-setting 2021, commercial investment activity in the National Capital Region is on pace to exceed that amount this year, Re/Max says in its 2022 Commercial Real Estate Report released on Thursday.

Citing the Conference Board of Canada’s projection that Ottawa-Gatineau’s GDP will grow by 3.4 per cent in 2002 as the tech and construction sectors heat up, the firm said that sunny forecast should bode well for real estate investors.

“Against this backdrop, the city’s commercial market should remain vibrant, with improvements projected in the office sector as the pandemic recedes from the forefront,” the report said.

Re/Max singled out the red-hot industrial sector as the star performer in Ottawa’s commercial real estate scene. 

1.7% availability rate

The report cited the city’s close proximity to 400-series highways and the U.S. border as prime reasons for the ongoing surge in industrial activity, adding the limited stock of available properties is “presenting serious challenges” for investors seeking to capitalize on the sector’s growth.

According to the Altus Group, Ottawa’s industrial availability rate sat at 1.7 per cent in the first quarter of 2022, down from 3.1 per cent during the same period a year earlier. 

“While intent (to invest) exists, a shortage of available inventory for both lease and sale has fallen short of demand, especially in the popular west end,” Re/Max said.

The company said the space crunch has pushed industrial lease rates to a new record average high of a net $15.50 per square foot – a 30 per cent increase over the average of $12 per square foot just two years ago.

“In the city’s east end, smaller space is almost impossible to find, with listings that do come on stream snapped up quickly, often at a premium,” the report said.

Meanwhile, Re/Max said Ottawa’s retail real estate sector has “rebounded with a vengeance” after a difficult two-year stretch in which COVID-19 wreaked havoc with brick-and-mortar stores, restaurants and other mainstreet businesses.

Smaller spaces have been almost completely snapped up in major malls such as the Rideau Centre, Bayshore Shopping Centre and St. Laurent Shopping Centre, the report says, adding that vacant storefront properties in areas like the ByWard Market, Glebe and Westboro are also being occupied at a brisk pace.

“Negotiations with landlords are more complicated than in years past, with many wanting guarantees in the form of personal covenants,” Re/Max said. “The glut of space available last year has been absorbed, albeit at a slightly lower lease range.”

Suburban mall revival

The report said suburban retail complexes are also undergoing a renaissance, with fitness facilities, restaurants and fast-food outlets among the major tenants taking over space in big-box malls.

The company isn’t as bullish on the office sector, which still has an overall vacancy rate above 10 per cent. With many civil servants still working from home, Re/Max said it could be a while before Ottawa’s office towers are teeming with tenants again.

As a result, the company said, landlords have started offering incentives such as free rent for a year and various leasehold improvements in a bid to fill vacant properties.

“At the same time, the relatively low interest rate environment has generated an upswing in demand for office buildings in suburban areas like Kanata,” Re/Max added. “Most are smaller, commercial buildings ideal for professional offices, generally sought-after by end users.”