Despite new office towers, fed demand keeps downtown market hopping

As the federal government continues to gobble up office digs downtown, private-sector companies are moving quickly to secure space for themselves in a market dominated by the public service.

Vacant commercial real estate in the downtown – in particular large amounts of contiguous space – are getting snapped up as quickly as they are becoming free, say the experts.

It's a trend that hasn't abated despite Constitution Square's 350,000-square-foot third phase coming on stream last May, and Minto's new LEED Gold building at 180 Kent St. that's expected to be completed in mid-2009.

"I guess there's not a whole lot of space left in the new Constitution Square III tower, last time I checked," said Michael Church, principal and vice-president of Avison Young commercial brokers' Ottawa office. "They've got a number of encumbered floors there. If someone was looking for 30,000 square feet of space, they'd be hard pressed to get it. You can get some . . . but you'd have to stagger it over time. Contiguous space is hard to find."

Mr. Church laid the blame for that on the federal government, which he said has been snapping up all the "big blocks" of space as quickly as they become available.

"The market is still healthy in Ottawa," agreed Denis Shank, an associate vice-president at GVA Devencore's Ottawa brokerage office.

"The feds have 50 per cent of the space out there. What they decide – the ripple effects – definitely impact the market," he said.

Private sector firms with large space requirements, like Ottawa's larger law firms, need to play musical chairs – and they need to play the game quickly – in order to meet their space requirements.

This September, Nelligan O'Brien Payne LLP is planning on moving its 125 Ottawa staff from its current class-B digs at 66 Slater St. three blocks away to the 15th floor of the Sun Life Financial Centre at 50 O'Connor St. (formerly the Clarica building).

The move will help consolidate the law firm to one floor instead of three, said office manager and HR director Caroline Choquette, and will allow it to upgrade from a class-B space to a leaner and meaner class-A office space befitting a large firm. It will also be a more environmentally friendly office, she said.

"It will afford us to all be on one floor. The floor plate is much larger," said Ms. Choquette. "We're coming to the end of our lease. We've been here for 20 years, and we're basically looking for fresh, new space, and a building that can provide more services" for its staff, including restaurants, banks and even dry cleaners, something Ms. Choquette said was in short supply on the east end of Slater.

"We like the (current) location – it's close to the courthouse and the Rideau Centre," she acknowledged. "But we're only moving three blocks away."

Of course, with Nelligan's space requirements reaching some 30,000 square feet, it's a move that needed smooth deal making and some lucky timing to proceed, said Mr. Church.

For Nelligan to move to the Sun Life building, someone else had to vacate.

"What happened was Osler (Hoskin & Harcourt LLP) moved out of 50 O'Connor and into the top two floors of Constitution Square phase III," explained Mr. Church. "(Osler) had been there probably since it was built 20 years ago." Musical chairs ensued. With Osler moving out, Nelligan moved in, and everyone ended up more or less where they wanted.

"The feds were a concern," said Ms. Choquette. "But when we actually started looking, we had specific buildings in mind, so we knew what we wanted and where we wanted to go. We had about three or four options open to us, so we didn't feel like we were squeezed into having to take specific space. We were able to cherry pick space that we wanted, and we got into a building that was probably our number one choice."

Ms. Choquette said she could not give details on how much Nelligan is paying for the lease at 50 O'Connor, although space there is being advertised at $28 a square foot. The lease was a "standard" 10-year deal with options to downsize after five years and the first right of refusal on contiguous space if they felt like expanding, she said.

"Of course there's so much pressure from the feds," said Mr. Church. "They get the big blocks. When big blocks (become available), they get snapped up. So it's getting a little tighter."

In fact, Mr. Church said, rumours about town are pointing towards a federal government tender call for 30,000 square feet, due out this week. He sees them snapping up the newly vacated Nelligan office at 66 Slater, even though it is a class-B space.

"As long as (the building) meets accessibility standards, the government is very rate-driven, as we know," Mr. Church said. "And it makes it a lot easier to get it by Treasury Board."