R2 Real Es­tate: To­day’s mar­ket in Ottawa

Ottawa Business Journal - BOMA Magazine - - Cover Story: The Four Rs -

In looking at the cur­rent health of the Ottawa mar­ket, the num­bers speak for them­selves. Pub­lic Works and Gov­ern­ment Ser­vices Canada is a very large, sta­ble and ap­peal­ing ten­ant, ac­cord­ing to Glen MacMullin, vice-pres­i­dent of the Minto Group, not­ing that over the past year, their firm’s va­cancy rate in the down­town core edged up only slightly from 2.5 per cent to 2.6 per cent, an in­crease sig­nif­i­cantly less than what other North Amer­i­can mar­kets ex­pe­ri­enced over the same time pe­riod.

Ottawa’s cen­tral busi­ness district is likely to re­main a tight mar­ket be­cause there has been very lit­tle new construction in the area over the past few years. How­ever, th­ese same mar­ket con­di­tions are the ones which in­spired Minto to be­gin work on its 180 Kent Street prop­erty be­fore ac­quir­ing ten­ants. As Mr. MacMullin ex­plains, the build­ing was 0 per cent leased when the shov­els went in the ground and is now 70 per cent leased, well on its way to be­com­ing a fully oc­cu­pied, LEED Gold build­ing. This sup­ports the no­tion that if you build pre­mium space in the city’s core, it will get snapped up, if not by the gov­ern­ment then by other ten­ants who ap­pre­ci­ate the same fea­tures and func­tion­al­ity.

The ab­sence of any large blocks of con­tigu­ous space in down­town Ottawa also con­trib­utes to the tight mar­ket con­di­tions, and it’s not only Class-A space that’s pop­u­lar. Re­cently, notes Mr. MacMullin, the fed­eral gov­ern­ment has leased ap­prox­i­mately 600,000 square feet through­out the re­gion, which in­cluded a sig­nif­i­cant amount of the avail­able Class-B space.

A fi­nite sup­ply of land will keep things tight in the down­town mar­ket for years to come, given that there are very few sites avail­able for de­vel­op­ment in the core. As for tear­downs and re­builds, Mr. MacMullin says that un­less a build­ing’s con­di­tion makes it com­pletely pro­hib­i­tive to re­fur­bish­ing, this is un­likely to hap­pen. As he ex­plains, the city’s cur­rent height re­stric­tions for build­ings in the core also make it less cost-ef­fec­tive to build new of­fice tow­ers. How­ever, he be­lieves that on­go­ing retrofitting of ex­ist­ing build­ings will take place over the com­ing years, to bring them up to ten­ants’ re­quire­ments for ac­ces­si­bil­ity and green­ing. As aware­ness grows of cer­ti­fi­ca­tions such as BOMA BESt and LEED for Ex­ist­ing Build­ings, ten­ant ex­pec­ta­tions for

sus­tain­abil­ity will grow as well. An­other fac­tor sure to af­fect the Ottawa mar­ket­place over the next few years will be the need for swing space to tem­po­rar­ily house ten­ants while build­ings are be­ing retro­fit­ted.

Mr. MacMullin ac­knowl­edges that Ottawa’s en­dur­ing ap­peal lies in the sta­bil­ity and qual­ity of life it of­fers. A bilin­gual, tal­ented work­force and the re­gion’s many ameni­ties, in­clud­ing af­ford­able hous­ing, make the na­tion’s cap­i­tal a great draw for com­pa­nies looking to set up shop in Canada.

It’s in­ter­est­ing to turn the lens out­ward to see how Ottawa stacks up against other mar­kets. Mario Lefebvre, di­rec­tor of the Cen­tre for Mu­nic­i­pal Stud­ies at the Con­fer­ence Board of Canada, has sig­nif­i­cant ex­pe­ri­ence in com­par­ing var­i­ous cities. He says that if you like sta­bil­ity, Ottawa is one of the best places to be. Looking for­ward, the trend right now is all about de­mog­ra­phy. Those ex­am­in­ing var­i­ous cities and mar­kets are all watch­ing for growth in pop­u­la­tion and tracking the ag­ing of the pop­u­la­tion. Mr. Lefebvre says that if you are a com­pany looking for a new lo­ca­tion, you want to be sure you can find the labour you need to­day, as well as to­mor­row. Ottawa is ideal be­cause year af­ter year, the fed­eral gov­ern­ment at­tracts some of the best peo­ple from across the coun­try. Not all of th­ese tal­ented in­di­vid­u­als will stay in the pub­lic ser­vice, mak­ing them a great source of em­ploy­ees for other lo­cal com­pa­nies.

He also notes that the pres­ence of the fed­eral gov­ern­ment in and of it­self serves as a real safety net for Ottawa. In chal­leng­ing times, other sec­tors like man­u­fac­tur­ing or construction might take a hit, but the pub­lic sec­tor usu­ally does not. He cau­tions, how­ever, that suc­ces­sive years of fed­eral deficit could lead to a mea­sure of re­struc­tur­ing which could change the lo­cal land­scape. With the coun­try cur­rently op­er­at­ing in a deficit po­si­tion, this is some­thing to which he will be pay­ing close at­ten­tion.

Ottawa’s ap­peal ver­sus other mar­kets is bol­stered by the fact that the cost of do­ing busi­ness in our re­gion re­mains very rea­son­able. As Mr. Lefebvre says, ev­ery­thing from the cost of hous­ing to wages to the over­all cost of liv­ing is lower here than in sev­eral other large ur­ban ar­eas of the coun­try, mak­ing Ottawa more ap­peal­ing to some com­pa­nies and work­ers than more ex­pen­sive cities such as Cal­gary, Toronto, or Van­cou­ver. In 2007, the Con­fer­ence Board of Canada is­sued a re­port ex­am­in­ing Canada’s 27 Cen­sus Metropoli­tan Ar­eas (CMAs) and Ottawa ranked as the sixth most at­trac­tive to peo­ple, be­hind Cal­gary, Toronto, Van­cou­ver, Ed­mon­ton and Vic­to­ria. Mr. Lefebvre says a sim­i­lar study to­day might see Ottawa’s po­si­tion up a few notches, given the trou­bles in the en­ergy sec­tor.

It is also in­ter­est­ing to look at what other Cana­dian cities are do­ing to in­crease their ap­peal: Saskatoon is a great ex­am­ple. Sev­eral years ago, Mr. Lefebvre iden­ti­fied it as an im­pend­ing suc­cess story; the turn­around is now hap­pen­ing and Saskatoon has be­come a city whose eco­nomic base has changed dras­ti­cally. The im­pe­tus was a con­certed ef­fort by Saskatoon’s busi­ness and com­mu­nity leaders to at­tract cut­ting-edge tech­nol­ogy, in the form of a syn­chro­tron which emits a type of in­tense light that al­lows mat­ter to be ‘seen’ at the atomic scale. This de­vice, cur­rently one of only two in North Amer­ica, al­lows sci­en­tists to probe the struc­ture of mat­ter with greater ac­cu­racy and pre­ci­sion than has ever be­fore been pos­si­ble, and is draw­ing re­searchers from all over the world to this prairie city. As a re­sult, Saskatoon has be­come a very sci­en­tific and busi­ness-ori­ented com­mu­nity, one Mr. Lefebvre de­scribes as in­cred­i­bly dy­namic. He adds that we as a na­tion are miss­ing out be­cause there re­ally isn’t enough syn­ergy be­tween Cana­dian cities. Every­one seems to be work­ing in iso­la­tion and we re­ally should be shar­ing best prac­tices to help each other. In other words, we in Ottawa should take a page from Saskatoon’s ex­pe­ri­ence.

So what can Ottawa learn from Saskatoon? Eco­nomic re­gen­er­a­tion can be ac­com­plished by iden­ti­fy­ing the sec­tors that are most likely to move for­ward, then push hard to play in that space. In Saskatoon’s case, ex­plains Mr. Lefebvre, they iden­ti­fied the syn­chro­tron as one horse they were go­ing to ride to the fin­ish and it has proven to be very suc­cess­ful. He adds that this kind of vi­sion is es­sen­tial in this era of glob­al­iza­tion – civic and busi­ness leaders need to work to­gether to pick the sec­tors to which a city wants to de­vote its re­sources and pur­sue that force­fully. A group of leaders work­ing to­gether can make a com­mu­nity more at­trac­tive to busi­ness and Ottawa cer­tainly can do more of this, which would in turn help many sec­tors of our econ­omy. Mr. Lefebvre notes that just be­cause we are not strug­gling here in Ottawa doesn’t mean we shouldn’t be ag­gres­sively try­ing to en­hance our po­ten­tial for growth.

Nar­row­ing down the fo­cus to Ottawa real es­tate mar­ket, Mr. Le­fevbre says that the com­mer­cial sec­tor has al­ways been well backed by the fed­eral gov­ern­ment, which will con­tinue its steady ex­pan­sion over the medium to long term. On a res­i­den­tial ba­sis, he adds, there is al­ways some­thing nice about Ottawa’s pop­u­la­tion and need for hous­ing – given that we will keep at­tract­ing peo­ple from all across the coun­try as long as our key sec­tor, pub­lic ad­min­is­tra­tion, is grow­ing we will al­ways have slow steady growth. This may not be as ex­cit­ing per­haps as some other cities that have wider eco­nomic fluc­tu­a­tions, but our 1 per cent growth in pop­u­la­tion per year is a nice pace. If you are a spec­u­la­tor, maybe you would want to play in the boom­ing mar­kets, but to him, steady as she goes is a nice way of do­ing things.

If our in­ter­nal growth is driven by the pub­lic ser­vice, then Mr. Lefebvre sug­gests that we should be looking out­ward for new op­por­tu­ni­ties for growth. He would love to see Ottawa work­ing more on the in­ter­na­tional level, try­ing to se­cure more for­eign di­rect in­vest­ment. For a long time this was per­ceived as a bad thing, rep­re­sent­ing a po­ten­tial loss of con­trol, but given glob­al­iza­tion and in­ter­na­tional sup­ply chains things are chang­ing. How­ever, Ottawa is presently hin­dered by the fact that, for for­eign in­vestors, it’s not very sexy to come and in­vest in a pub­lic ad­min­is­tra­tion town. Were they to come here, what would they in­vest in? What can we do to at­tract them? Clearly, Saskatoon and even Win­nipeg both of­fer good mod­els for us to fol­low. Mr. Lefebvre is con­fi­dent that our mar­ket’s fu­ture growth and di­ver­si­fi­ca­tion de­pends upon the re­al­iza­tion that we don’t have to be as large as Toronto, Montreal or Van­cou­ver to

at­tract for­eign in­vest­ment, which would be a nice com­ple­ment to the pub­lic sec­tor upon which our mar­ket has be­come so re­liant.

It should be noted, how­ever, that while the Na­tional Cap­i­tal Re­gion is cur­rently very re­liant upon the vast num­bers in the fed­eral gov­ern­ment work­force, that’s re­ally not our whole story. Many gov­ern­ment jobs are classified as ‘creative’ oc­cu­pa­tions ac­cord­ing to the Creative Class in­di­ca­tor (a term coined by ur­ban stud­ies the­o­rist Richard Florida), as they re­quire one to think and pro­duce based on one’s own skills. It is this cre­ativ­ity that is vi­tal for long-term com­pet­i­tive­ness. In April 2009, the Martin Pros­per­ity In­sti­tute pub­lished a re­port en­ti­tled On­tario in the Creative Age. Co-au­thored by Mr. Florida and Roger Martin, dean of the Uni­ver­sity of Toronto’s Rot­man School of Man­age­ment, the study urged the prov­ince and busi­nesses to boost ed­u­ca­tion lev­els, wages, train­ing and cre­ativ­ity as a means to a bet­ter econ­omy. Their re­search shows that our re­gion is closer to the goal than any­where else in the prov­ince and that the Ottawa-Gatineau CMA is well po­si­tioned to com­pete in the creative age. Our re­gion per­forms well on the in­di­ca­tors they call the “3Ts”, rank­ing 2nd on Tech­nol­ogy and Tal­ent among its peer re­gions, and 1st on Tol­er­ance, lead­ing to an over­all rank­ing of 3rd out of 374 North Amer­i­can re­gions on the In­sti­tute’s Cre­ativ­ity In­dex. The re­port con­cludes that our re­gion has a num­ber of strong eco­nomic as­sets that it can lever­age to achieve fu­ture eco­nomic growth.

Given our po­ten­tial, Mr. Lefebvre agrees that Ottawa should lever­age what it has to of­fer and work harder to show­case our city. He notes that if he were a for­eign in­vestor, Ottawa would not yet be catch­ing his eye. Al­though every­one rec­og­nizes that we are lucky to have such a strong pub­lic sec­tor which truly serves as Ottawa’s bread and but­ter, he says it would also be nice, how­ever, to see the pri­vate sec­tor trans­form it­self into some­thing that can gar­ner na­tional and in­ter­na­tional at­ten­tion and thereby draw more for­eign in­vest­ment to Ottawa.

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