 |
 |
 |
 |
|
| Population 1.2 million | ||||
| Employment 667,000 | ||||
| Unemployment Rate 5.0% | ||||
| Retail Sales $15.1 billion | ||||
| Consumer Price Index 2.7% | ||||
|
||||
| ↓ | Office | ↑ | ||
| ↓ | Industrial | ←→ | ||
| ←→ | Retail | ↑ | ||
| Overall Cap Rates ↑ |
||||
| Source: DTZ Barnicke | ||||
| 2007 | 2008e | 2009f | 2010f | |
|---|---|---|---|---|
| Real GDP* | 2.5% | 1.2% | 1.2% | 2.9% |
| Population* | 0.5% | 0.6% | 0.8% | 0.9% |
| Employment* | 1.3% | 2.4% | -0.7% | 1.8% |
| Unemployment Rate | 5.2% | 5.0% | 5.7% | 5.5% |
| Personal Income per Capita | $40,523 | $42,043 | $42,888 | $44,503 |
| Total Housing Starts | 9,300 | 9,900 | 8,100 | 7,200 |
| Retail Sales* | 4.3% | 5.9% | 4.0% | 4.9% |
| CPI* | 1.9% | 2.7% | 2.1% | 1.8% |
| Source: Conference Board Canada | *Percentage Change from Previous Year | |||
Market overview
Despite the economic slowdown, Ottawa’s economy posted modest growth across all economic sectors in 2008 and this trend is expected to continue through 2009. The four year expansion trend in the high tech manufacturing sector came to an end in 2008, and activity in the construction industry also weakened. The public administration sector remains the main driver of the local economy. Ottawa’s economy grew by only 1.2% in 2008, its weakest performance in 12 years; however economic growth is forecast to improve to 2.9% in 2010. Retail sales remain strong, increasing by 5.9% in 2008 and forecast to increase by 4.0% in 2009. Housing starts increased for the second straight year, with 9,900 units. New residential construction is expected to ease off to levels more in line with underlying household formation in 2009 with another 8,100 units expected.
Due to the stabilizing factor of the federal government, Ottawa continues to be one of the most preferred locations in Canada by investors.
Office
Office vacancy increased 100 basis points to 6.7%, as a result of the economic downturn. Despite an expected softening in demand from the private sector, vacancy rates are expected to decrease in 2009, due to continued strong demand for space by the federal government. Net absorption was negative 542,000 square feet through the first three quarters of 2008, mainly as a result of high tech manufacturing and call centres relocating their operations offshore due to the high Canadian dollar. Absorption levels are expected to improve in 2009, as the federal government is expected to lease significant blocks of space scheduled to come onto the market.
At the end of 2008, the federal government published a request for information on the availability of up to 3.9 million square feet of rentable office space in the National Capital Region to meet four separate requirements, aimed to address key issues such as the need for swing space, the need to renovate aging properties, the replacement of expiring leases, and the implementation of the latest standards for green buildings and accessibility in federal government buildings. The four requirements can be met in existing or newly constructed buildings, with lease terms of between 15 and 25 years, starting around fall 2011. It will be interesting to see which properties the government will vacate and which properties developers and landlords will submit to the government, and ultimately how Ottawa's office market is impacted by the anticipated leasing activity over the next two years.
Construction activity slowed in 2008, with only one completion totaling 146,000 square feet. Minto Place Tower 4 at 180 Kent Street (383,000 square feet) will be completed Downtown in Q2 2009 where five of 19 floors have already been pre-leased. EDC announced they will relocate to a new 450,000 square foot head office to be built by Brocollini Construction and Canderel Developments at 150 Slater Street, with occupancy scheduled for late 2011.
Overall net rental rates decreased in 2008, while additional rents have increased. Slowly rising vacancy and the influx of large block vacancies have put downward pressure on rental rates in 2008. We expect net rents to stabilize in 2009.
Industrial
Industrial vacancy decreased 70 basis points in 2008 to 3.6%, as occupied space increased by 205,000 square feet. Vacancy rates are expected to rise slightly in 2009, due to continued uncertainty in the economy coupled with the completion of several new buildings and the release of existing space in the western suburban markets. Despite the slowdown in the manufacturing sector, demand remains strong from the transport, storage and distribution sectors for product with high ceiling and lots of shipping doors in the east end of Ottawa; unfortunately there continues to be shortage of such space.
Rental rates held firm in 2008. The Ottawa industrial market is predominantly a landlords market, except for the Kanata tech manufacturing submarket. Rental rates are expected to remain stable in 2009.
| Office Inventory | 34.4 million |
| Office Vacancy | 6.7% |
| CBD Class A Vacancy | 1.7% |
| Industrial Inventory | 21.6 million |
| Industrial Vacancy | 5.5% |
| Source: DTZ Barnicke and Conference Board Canada | |
Investment
Due to the stabilizing factor of the federal government, Ottawa continues to be one of the most preferred locations in Canada by investors. However, with the credit crisis in the US, investment activity levels slowed dramatically in 2008. Sales volumes are down 50% from 2007. We do not expect to see much change in 2009, until the global economy rebounds from the current credit crisis.
Products most in demand are industrial and downtown office land, regional shopping centres and single tenant industrial buildings. The least sought after products are suburban Class B office and hotels. Cap rates trended upward in the second half of 2008, and we expect this trend to continue through 2009. Challenges for sellers in 2009 will be to find willing buyers with cash available.
Retail
Retail activity was robust in 2008. Total retail space grew by 9% in 2008 to 31 million square feet, while overall vacancy remained steady at 3%. Rental rates continued to escalate, with the average net rent approaching $20.00 per square foot.
Power centres continue to grow in the suburbs. Approximately 212,000 square feet of new retail space was built in 2008. Some retail developers are shifting their focus to smaller scale suburban infill projects. Currently, there is 218,000 square feet of new retail under construction (66% of which is strip plaza development).
New retailers to market in 2008 included Lucky Brand Jeans, Coach, Sephora, Marciano, Aeropostale and Murale. Lowe’s is expected to open up to three stores in the Ottawa area in 2009.
The global credit crisis and its effect on consumer confidence and spending will be a challenge for retailers in 2009; however, Ottawa’s high concentration of public servants (1 in 5) will help stabilize the local retail market. Some retailers and developers are adopting a ‘wait-and-see’ approach on new developments and expansion plans.