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Posted: Friday, April 23, 2010
By: By Peter Kovessy, staff writer for the Ottawa Business Journal |
As a large number of Kanata office leases expire over the next two years, some commercial real estate experts predict considerable amounts of space will be returned to landlords when tenants renew or sign new leases.
This is expected to keep rental and vacancy rents relatively flat in the short term, says Greg Clark, an Ottawa-based vice-president and managing director at CB Richard Ellis.
“As long as we are continuing to see contraction among private-sector tenants, it is difficult to predict an increase in rental rates,” Mr. Clark told OBJ in a recent interview.
“Any time a market has a significant number of lease expiries in a given year in what is still a down cycle in the marketplace, it creates uncertainty.”
The Kanata market grew rapidly during the tech boom, with many companies signing leases for typical 10-year terms that are now coming to a close.
One of the big questions is how much “shadow” space currently exists in the market. Tenants who find themselves with excess space that they are unable to sublease must carry it until the end of their lease, when they can return it to their landlord.
Mitel is one of the largest Kanata tenants currently recalculating its space requirements. Company spokesperson Danielle McNeil says its 406,000-square-foot lease with Kanata Research Park expires in February 2011 and that Mitel is “assessing all its options,” but has no plans to move its corporate headquarters outside Ottawa.
However, some Kanata watchers say that unless Mitel plans to drastically cut down its space requirements, there are few obvious alternatives to its Legget Drive campus.
Darren Fleming, managing principal at CresaPartners, says the large pockets of available space in Kanata are significantly smaller than what Mitel currently occupies. They include the 146,515 square feet in the former call centre built for Dell at 1001 Farrar Rd. and about 110,000 square feet in the Old Abbott Laboratories building on Corkstown Road.
One plausible option would be the Nortel Campus on Carling Avenue, which had hundreds of thousands of feet of excess space even before the former Canadian tech icon entered bankruptcy protection.
Observers are watching whether the buyers of Nortel’s business units will vacate the 2.2 million-square-foot campus. Some experts say they expect the federal government to take the space as Public Works vacates several older downtown buildings in the coming years.
For years, many thought the low rents and large pockets of vacant space in Kanata would lure the federal government west across the Greenbelt.
In January, Public Works was said to have leased approximately 100,000 square feet from Kanata Research Park in the lowrise portion of 349 Terry Fox Dr.
But despite the rumoured deal, which neither Public Works or KRP would confirm, some say the pressure is off the federal government to snap up space in Kanata. The construction of Export Development Canada’s new office tower will open up space downtown, and Public Works is planning to develop its 29.6-acre development site near St. Laurent Boulevard and Highway 417, purchased from the provincial government last year.
KRP president Martin Vandewouw says there has been a lack of federal solicitations for west-end accommodations and that it has been the private sector inquiring about some of the large, vacant buildings that have inflated Kanata’s vacancy rate in recent years.
Mr. Vandewouw is among those forecasting a rise in rental rates and a tightening of vacancy rates in 2010.
“The companies that survived (the recession) are in a position to start ramping up again and that is what is driving some of the demand for space,” he told OBJ.
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