Market deceleration was especially apparent during the second half of 2022, new report says
The elevated-rate environment and the present lack of a concrete return-to-office (RTO) policy by the federal government had a significant impact on the Ottawa office segment during the latter half of 2022, according to Avison Young.
“The last half of 2022 saw a dramatic drop in capital market activity which impacted profitability across many facets of the commercial real estate industry,” Avison Young said. “2022 finished on a sober note coming off the high of 2021.”
As of the first quarter of 2023, class A space availability stood at 11.7%, and it is likely to continue rising amid a rash of downsizing decisions by many tenants, Avison Young said. Total availability rate was at 13.1%, up from 11.4% in Q1 2022.
“Double-digit availability rates have become the norm across submarkets and asset classes,” Avison Young said. “The downtown core, with its large public service presence, has seen class A availability rates surge into the mid-teens in percentages, creating an unbalanced office market in favour of the tenant consumer for the first time in many years.”
Tenants’ utilization of their existing space is not likely to be optimal this year as a coherent federal RTO strategy has yet to manifest, Avison Young added.
“We anticipate an extended period when tenants will hold more cards in lease negotiations with landlords come lease renewal,” Avison Young said. “As business owners attempt to increase employee attendance, they are beginning to enact change to existing leases. Preference is being shown for better, newer, more efficient buildings; the popular ‘flight to quality.’”
The trend is likely to put areas like Little Italy, Westboro, and Lansdowne to the fore as top-tier choices in this post-pandemic office environment, Avison Young said.
“The neighbourhoods with the best amenities are being sought out, as employees demand choice when it comes to retail, food, service, and public transportation,” Avison Young elaborated. “Office users may be downsizing, but they are channelling these savings into better overall work experiences for their employees.”
