R2 Real Estate: Today’s market in Ottawa
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.