Tech firms taking over Ottawa’s downtown
Amid the revitalization of Ottawa’s downtown core, federal government tenants are competing for office space with the booming technology industry.
Commercial real estate experts in Canada’s capital say the combination of steady employment, confidence in government hiring, and the influx of fresh talent in the technology sector, along with the launch of a light-rail transit system, has caused Ottawa’s office vacancy rate to drop to its lowest levels in nearly two decades.
“We’ve come through a period where it’s been pretty challenging in the downtown and Ottawa at large, and in the last 18 months we’ve seen a lot of activity that’s extremely positive,” says Jeff Brown, associate vice-president of real estate service firm Colliers International in Ottawa.
“The transformation in the downtown is really interesting. Having tech take a sizable footprint in the downtown is something we’ve never seen before. It’s fantastic news.”
Tech companies are now the biggest tenants in Ottawa’s central district other than the federal government. Recent estimates from CBRE Group Inc., another real estate service company, say tech firms occupy nearly 650,000 square feet of office space in the downtown. That’s 150,000 square feet more than the accounting and legal sectors combined, and it’s growing bigger.
This past summer, CBRE ranked Ottawa No. 1 for North American cities with the most “momentum” when it comes to the technology industry. Statistics Canada data used by CBRE says the percentage of people employed in tech in Ottawa jumped five percentage points from 2014-15 to 2016-17.
In 2014, Ottawa-based e-commerce giant Shopify built a new office at 150 Elgin St. for 1,000 employees that spanned more than 100,000 square feet across six floors. Shopify is now in the process of renovating 325,000 square feet at another building at 234 Laurier Ave. (about 500 metres away) to house more than 2,500 staff.
“Both of our offices (on Elgin and Laurier) are downtown because that’s what our employees have asked for,” Sid Farraj, the director of real estate at Shopify, wrote in an e-mail.
“Having offices in downtown Ottawa has allowed us to be situated in a central location, provide sought-after amenities, and allow employees to be close to community organizations, experiences, and dining. We strive to find office locations where people want to spend their time after work as well.”
Colliers released a study last July that said the availability rate of office space in downtown Ottawa decreased by nearly a full percentage point from the first quarter to the second in 2018.
The rates may get even tighter through 2019 and beyond. Ottawa’s unemployment rate sits at 4.9 per cent, well below the national average of 5.6 per cent, and the public sector has experienced an increase of 24,000 jobs in the past two years.
“Ottawa lives and breaths by the federal government, that’s just a given, but to have this new dynamic in the downtown is exciting,” says Mr. Brown at Colliers.
Experts in Ottawa are also betting big on a new light-rail transit system’s impact on the downtown core.
Sean O’Sullivan, the vice-president and general manager of major landlord Bentall Kennedy in Ottawa, says although the impact of the LRT is mostly predictive now, it’s hard to ignore.
“Once it’s upon us you’ll see the benefits of it,” he says. “If you’ve got a property … a block or two off the light rail, you’re going to do very well.”
The LRT, a 13-stop transit line connecting Blair Station in the east to Tunney’s Pasture station in the west and running underground past Parliament Hill, has already been a catalyst for change in Ottawa’s downtown.
Shawn Hamilton, the senior vice-president and managing director of CBRE in Ottawa, can’t recall a time when there were so many simultaneous developments planned in the city.
The SunLife Financial Centre – a building managed by Bentall Kennedy – has undergone millions of dollars worth of investment, including the addition of Ottawa’s first food hall. The Rideau Centre shopping mall has just completed a $100-million renovation, while both the University of Ottawa and the Ottawa Art Gallery have upgraded, too.
“The timing of these can’t be coincidental with LRT,” says Mr. Hamilton.
The LRT will not be running until the spring of 2019, but Mr. Brown says companies looking for a younger employment base (Shopify started downtown and is continuing to grow downtown) will want to stay in the core.
“If you’re a landlord and not located in close proximity to an LRT station, it will be hard to maintain your market share moving forward,” he says.
Companies that are already downtown may move buildings, but they are staying in the core. NAV Canada, Canada’s privately-run civil air navigation agency, will be shifting into 140,000 square feet of office space a few blocks from where it is currently located, for example, and the space left by NAV Canada is expected to be modernized and updated. Mr. O’Sullivan says he’s seen an increase in the number of plans to carry out such retrofits.
Experts agree the federal government will always be the main tenant to drive Ottawa’s commercial real estate market. But while Mr. Hamilton says the federal government has pressures on it to expand its office space footprint, given its growing employment base, the office space that is available is too small.
“They require larger blocks of space in order to be efficient,” he says of the federal government.
And while new commercial construction in Ottawa has mostly been in response to federal government tenancy, the city has come to a bit of a crossroads between a long-time tenant and the demands of the new kids on the block.
“It’s not Manhattan or even Toronto … it’s Ottawa. So we’re not going to block out the sun with cranes,” says Mr. Hamilton at CBRE. “But I think we’re going to see more regular development in response to a growing and vibrant downtown private-sector industry.”
‘Burbs holding their own
The shift in Ottawa’s downtown tenancy toward technology and away from the federal government doesn’t come at the expense of the city’s long-time tech hub.
Kanata, about 30 minutes from downtown, has long been known as Ottawa’s epicentre for tech offices, with a 0-per-cent vacancy rate at the height of the dot-com boom when technology giants such as Corel, Mitel, Cognos, Newbridge Networks and Nortel Networks ruled the suburb and neighbouring areas.
After the crash, the vacancy rate soared to 30 per cent, but has been in recovery mode since. It sits at about 9 per cent now.
According to Shawn Hamilton, the senior vice-president and managing director of CBRE Ltd. in Ottawa, Kanata has regained its strength because it’s no longer reliant on a few behemoth-sized companies.
“The technology boom in the urban centre is not at the expense of Kanata, it’s in addition to Kanata,” he says. “We’ve got two silos of tech driving in Ottawa, which I find very exciting.”
In Kanata, Mr. Hamilton says, there has been a diversity of tenancies away from large companies to a larger number of mid-sized companies. He calls it Ottawa’s “most vibrant” submarket.
A new 100,000-square-foot building from Quebec City’s Cominar will be built in 2019 near the Canadian Tire Centre, perhaps setting the stage for further development in 2019 and beyond.
“That’s where our growth is going to have to come from,” he says.