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1001 Farrar Rd.

Tightening credit, lack of available portfolios blamed for 47.7-per-cent drop in movement

The federal government's stabilizing influence on Ottawa's commercial real estate market couldn't fully immunize the market from a sharp decline in investment seen nationwide in the first half of 2008, according to a recent study by CB Richard Ellis.

Investment levels across all sectors in Ottawa plunged to $322 million from $618 million a year earlier, with the multi-residential category seeing the largest drop. The office sector showed the only increase, climbing to $134 million from $89 million in the first half of 2007.

The National Capital Region experienced the second-steepest decline among the nine Canadian markets surveyed, all of which experienced double-digit percentage drops in investment, except Vancouver.

"Across North America, there has been a slowdown in the commercial real estate business," said Ottawa-based CB Richard Ellis sales representative John Seymour.

"What is harder to know is whether the slowdown is a result of lack of interest or a lack of product for sale."

With 2007 being a record investment year nationally and relatively robust locally, Mr. Seymour said many vendors are holding off bringing Ottawa properties onto the market, hoping they can fetch a better price if they wait.

Many sellers may also have been sitting on the sidelines during the first half of 2008 as they waited to see the implications of the U.S. credit crunch for the commercial real estate market, Mr. Seymour added.

Bernie Myers, Morguard Investment's director of asset management for Eastern Canada, said the decreased availability and higher costs of obtaining credit has made debt financing less desirable than in recent years.

On the flip side, however, Mr. Myers said there was a relatively low number of available properties on the market in the half-year.

"Most of the people who are investors in Ottawa are investors for the long term and are usually content with their portfolios or properties, and aren't trading just for the sake of trading," he said, adding he sees no indication investment activity will pick up in the second half of 2008.

One notable exception is the Hospitals of Ontario Pension Plan's (HOOPP) purchase of a 146,515-square-foot vacant building at 1001 Farrar Rd. from the Kanata Research Park for $32.25 million last month.

Constructed earlier this year to house Dell's high-end client call centre, the building was regarded as an attractive acquisition by several real estate watchers because the computer giant is tied to the property until 2017.

Not only does this give the property's owner a guaranteed revenue stream for almost a decade, but it also allows the pension fund to ride out Kanata's high vacancy rate, said Lisa Lafave, HOOPP's senior portfolio manager.

"We see a lot of stability in Ottawa," she said.

Ms. Lafave said HOOPP has been active in acquisitions this year, mostly in response to golden opportunities such as the Dell call centre, along with "filling niches."

HOOPP owns six downtown office towers and a handful of suburban office buildings in Kanata managed by Morguard, said Ms. Lafave. n

For a complete overview of commercial investment and the commercial real estate market in the National Capital Region, see CB Richard Ellis's study in the 2008/2009 BOMA Ottawa Commercial Space Directory.