Downtown Ottawa office building vacancy hits new high: report

Vacancy rates for office buildings in downtown Ottawa have reached an all-time high, according to a recent report.

Commercial real estate company CBREhasbeen measuring commercial real estate use across the country since 1996.

It found vacancy in downtown Ottawajumped from 13.2 per cent in theprevious financial quarterto 15.1 per cent by the end of June the city's highest rate on record.

CBRE Ottawa's managing director said the record is noteworthy but not necessarily cause for alarm.

Louis Karam saidbusinessesin the cityare still seeing more occupancy than most major Canadian cities.

The report showed Ottawa is below the national average of 18.9 per cent vacancy andbehind both Toronto at 15.8 per cent and Calgaryat 31.5 per cent. Only Vancouver's 11.5 per cent is better in the surveyed cities.

On a national scale, the report cited a mix of recent economic changes asreasons for whybusinesses are reducing the size oftheir downtown offices or commercial footprints.

"Canadian office markets are grappling with a perfect storm of a recession threat, interest rate hikes, tech sector weakness, tenants rightsizing and new supply of office space,"the report read.

"All of this is compounded by the continued uncertainty around remote work."

Ottawa faces unique challenges

While not exempt from those changes, Karam saidOttawa is facing its own unique challenges affecting commercial real estate downtown.

Public Services and Procurement Canada (PSPC), which manages real estate for the federal government and federal agencies, is the largest commercial tenant in Ottawa.

Karamsaid that may soon change.

"PSPC occupies half of our footprint across our downtown core and they're looking to reduce [real estate holdings] by 50 per cent," he said.

In May, PSPCdeputy ministerPaul Thompsonannounced a 50 per cent reduction target as part of a 10-year plan, in light of hybrid-work models.

He said the effort will reduce rent spending and earn money from sales of existing properties.

Karamsaidthe reductions will take place over a long periodand expects the flagging tech sector to rebound in that time.

Downtown occupancy 'top priority'

SuelingChing,president and CEO of the Ottawa Board of Trade,said the board has declared healthydowntown occupancy as a "top priority."

PSPC's reductions, Ching said, will have a detrimental effect on a city soreliant on the massive workforce of thefederal public service.

"We have created a downtown, including the businessesthat are down there, to support that workforce presencethat has not been there since the beginning of the pandemicand has shown no signs of returning," she said.

A thriving downtown is a matter of utmost importance to everyone in theregion,Ching said.

"[Ottawa's downtown] is important to the social fabric, to the ability to attract visitors and business," Ching said. "Across the country, together, these large metropolitan areas account for over 60 per cent of our GDP."

Ching said the boardis asking forgreater transparency and collaboration with the private sector as the public servicereduces its footprint.

In the meantime, she's hopeful about the potential for unused office buildings to be converted to residential spaces.

With an ongoing desire to build more housing, Ching said, transforming empty downtown spaces is one of a few short-term solutions she would like to see acted upon quickly.

Karam is also optimistic about mixed-use conversion.

Though it's not always feasible, he said a recent study of some of the older buildings in Ottawa shows the city has a high potential forconvertingits office buildings.

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