Ottawa commercial real estate market update

Following a record setting 2021 year where the Ottawa and Gatineau market recorded an investment total of $3.8 billion, the 2022 year once again saw investor confidence in the market at an all-time high of $4.3 billion in total investment. This represented an impressive 13% year-over-year increase.

With economic uncertainties caused by inflation and rising interest rates, a dramatic pause in transaction activity was seen in the second half as sellers and buyers navigated through a price discovery phase. Despite all the impediments, the Ottawa and Gatineau market was one of the few which saw investment increase from 2021, proving the market continues to have strong fundamentals and a return in investor belief.

Results from our Investment Trends Survey show respondents ranked the Ottawa and Gatineau market as the third most preferred, behind only Toronto and Vancouver. Participants of the survey also indicated that the most preferred assets in the market were food-anchored retail strips, suburban multiple-residential and industrial land. Cap rates were seen rising across all major asset classes, with the exception of the multi-family asset class, which reported a compression. This is a result of the hesitancy in investor sentiment stemming from the volatile macroeconomic environment.

The 2022 year saw positive year-over-year gains for all asset classes except the retail and hotel sectors as they continued to seek footing after slumping during the pandemic. As seen in previous years, the multi-family sector was the most invested in, with just over $1 billion in total investment registered in 2022, a modest 5% increase compared to 2021. Steady population growth, together with housing availability and affordability issues, means this sector will continue to remain highly coveted as it presents as a stable asset in the market during a period of volatility.

The second most invested asset was industrial, which registered $846 million in investment volume, an impressive 240% jump from 2021. As industrial vacancy rates in the market sit at 2.6%, demand for this asset will continue to remain high, as supply remains constrained.

Heightened demand for the multi-family and industrial sectors should come as no surprise as they have proven to be more resilient to uncertain market conditions while also providing steady rental growth.

The office sector concluded the year with $806 million in sales proceeds, a 6% increase compared to the previous year. As return-to-office strategies continue, optimism in this asset class remains for investors. Despite office buildings seeing an increase in usage, short and mid-term challenges will continue in office assets as older office buildings face stiff competition from new supply which offer attractive amenities and ESG compliance. This could require older buildings to invest significant capital expenditures in order to contend. Land sectors (residential and ICI land) combined for $1.2 billion in investment volume over the 2022 year, comprising of $741 million from residential land and $452 million from ICI land. With noted shortages for housing and commercial space in the market, developers are determined to add new supply to the ever-growing market. However, within the current high-cost environment, many development projects have been put on hold as developers await economic conditions to stabilize.

Notable Q4 2022 transactions

The following are the notable transactions for Q4 2022 Ottawa commercial real estate market update:

Les Terraces Francesca, Ottawa - Apartment

Representing the largest sale of the fourth quarter, this luxury rental apartment complex located at 1425 Vanier Parkway was constructed in 2018 and features a mix of one-bedroom and two-bedroom suites. With a total of 276 units, this purpose-built rental apartment building was acquired by Centurion Apartment REIT for a total of $207 million. Prior to this acquisition, Centurion Apartment REIT made their first acquisition in the City of Gatineau with the purchase of Le Central, a newly constructed 345-unit development for $115 million.

550 de la Cité Boulevard, Ville de Gatineau - Office

Fully occupied by Library and Archives Canada, this 10-storey, 32,000 square foot office building was acquired by Montreal-based Groupe Mach for $66 million. The 2022 year was saw Groupe Mach invest over $306 million in office assets in the Ottawa and Gatineau market.

1310 Old Second Line Road; 1271 & 1291 Old Carp Road, Kanata – Residential Land

With a total acquisition price of $45 million, this 3-parcel land assembly totaling 90 acres was purchased by Minto Group. Prior to this transaction, Minto Group also made acquisitions in Cumberland and Goulbourn, with the latter being a $245 million dollar purchase in April. In total, Minto Group acquired 434 acres for $295 million in the 2022 year.

405 Huntmar Drive, Kanata - ICI Land

This 21-acre parcel was acquired by Montreal-based Rosefellow Developments for nearly $26 million. Development applications have already been submitted to the City of Ottawa proposing the development of two single-storey industrial warehouse buildings containing a total gross floor area of nearly 480,000 square feet.

With more than 233,000 square feet of industrial warehouse space currently under construction in the Kanata West Business Park, this proposal further increases the attractiveness of the rapidly growing industrial hub. This transaction is Rosefellow’s second land acquisition in Ottawa for 2022, as the developer also acquired nearly 15 acres at 575 Dealership Drive in September for a price of $20 million.

5035-5055 Innovation Station, Kanata - Retail

Acquired by Guelph-based Skyline Retail REIT for a total consideration of $10.2 million, this newly built retail property contains a gross leasable area of 15,375 square feet and was fully leased at the time of sale. The property contains eight retail units and is conveniently located adjacent to OC Transpo’s Innovation Park & Ride.

Despite the many challenges the Ottawa and Gatineau market has faced throughout 2022, with interest rates rising and a volatile macro-economic environment, the market continued to perform well. As the 2023 year begins and a period of price discovery with buyers and sellers remains, it will be interesting to see the evolution of the market over the course of the year.