I am reminded of an old Mork and Mindy episode. Robin Williams as Mork, the alien from Ork, has a policy of hiding in plain sight. He would leave his alien stuff hanging around the apartment that he shared with Mindy, played by Pam Dawber. Only the TV audience noticed the stuff that was plainly visible for anyone to see. However, the other characters in the show were oblivious to his alien gear.
This particular episode comes to mind when investigating the consolidation of office accommodations that has been planned for Ottawa by the Department of National Defence. They purchased a fairly large campus in 2010 that can house a lot of people. They announced that they will be relocating from more than 40 locations in Ottawa to about 10 locations. They have even specified which locations they are leaving and where they are staying. Despite this information, the market acts like it does not know any of this news.
It feels like the market as a whole and more particularly the owners of these locations have not yet noticed what others have seen, and that is that their office buildings have the DND leaving soon.
The DND posted this map to their web site in December 2013. If you have a dot on the left side that does not correspond to a dot on the right side, DND is vacating the building. These are the pesky red dots which this article examines.
The good news is that there is both a before and after map. The difficult part when attempting to make sense of these maps is their lack of detail when determining exactly which buildings they have identified. You could take comfort if you own a building in the big central cluster of little red dots if you believe your particular building has not been identified.
Moreover, the DND is pretty specific as to where they will stay:
Accommodations – Before and After Consolidation – December 13, 2013
Through consolidation to the Carling Campus, National Defence will reduce the number of headquarters locations in the NCA from over 40 to approximately seven.
In addition to the Carling Campus, the remaining office facilities in the region will include:
- the Louis St. Laurent Building at 555 Boulevard de la Carrière & a building at 455 Boulevard de la Carrière;
- 241 Boulevard Cité-des-Jeunes;
- parts of the National Printing Bureau at 45 Sacré-Coeur Boulevard; and
- Hôtel de Ville at 105 Hôtel de Ville Street.
- offices in a downtown location;
- offices for arm’s-length organizations, such as the National Defence Ombudsman and Military Police Complaints Commission; and
- NDHQ operational elements will continue to be located at 1600 Star Top Road.
And they are pretty specific as to when the move will occur (from a November 2014 presentation):
The more difficult part is figuring out where those disappearing dots are, and how much space they represent.
Piecing it together
We found some Treasury Board information online and consolidated the information into the chart below.
As is usually the case when investigating PWGSC activity in the Greater Ottawa market, we mostly get answers. The DND information talks about 40 locations whereas we list 28. We have excluded 2 leased buildings – 1600 Star Top and 105 Hotel de Ville – as the DND has said they are staying there. We have also excluded 6 warehouse properties they have leased. We have excluded the 2 lease-purchase buildings they occupy. We have excluded 6 buildings they own here in addition to the Carling Campus. We are tracking 42 properties for this analysis.
Another factor making this a little tricky is that we are not sure as to when the Treasury Board occupancy list is updated. The Treasury Board may indicate that a lease for DND occupancy is in place, however the occupant may have already vacated. The little red dot map is from 2013, so there could be some locations DND has already vacated.
We do not have good correspondence between the number of little red dots and our list above. By my count there are 7 dots in Gatineau and we account for just 2. Part of this could be as a result that we have identified leased accommodations as opposed to owned or lease-purchase buildings. We focus on leased accommodations as they impact competitive office space supply.
Lastly, plans have changed as the Louis St. Laurent Building at 555 boulevard de la Carrière (notionally a key holding) experienced structural damage that has resulted in it being vacated until at least the completion of the necessary repairs.
Using a “back of the napkin” check, the Treasury Board Directory of Federal Real Property lists the Carling Campus as having a floor area of 128,932 m2 (1,387,813 sf) and the list above includes 1,455,476 square feet leased, so we believe we are at least representative of what is happening.
Who gets hurt?
The Ottawa market as a whole gets hurt. This is 1.4 million sf of negative absorption starting in 2016 and finishing in 2020. That is a lot of negative absorption to take in, particularly when it is driven by the dominant employer in this market.
Some submarkets suffer more than others. There is now quite a number of large vacancies within office space along the East Highway corridor, which runs from the Nicholas interchange east to the Blair Road interchange. This submarket benefits from being part of the first phase of light rail transit, and it will be interesting to see how tenants respond to this market game-changer. The space that the DND will vacate represents about 7.3% of that submarket’s total inventory.
The biggest impact is on what CBRE describes as the Central submarket, which we have distinguished between the By Ward Market and Centretown, as the DND-occupied space they will be vacating represents 16.3% of that inventory. This is a submarket already experiencing a vacancy rate of 14.4%.
The impact of the DND vacating buildings on the CBD, South, West and Deep West markets is far less pronounced. Depending on the timing of these availabilities and any net absorption within all the submarkets, these DND additions to supply will push all submarkets into a vacancy rate exceeding 10%.
The buildings that are entirely or mostly occupied by the DND will be hit hard. The dilemma for the owners of these buildings will be determining if they should wait for eventual demand from other client departments within PWGSC, or transition to leasing to the private sector. Those who are close to light rail transit stops, have more modern buildings which are LEED/BOMA BEST certified, and can support Workplace 2.0 + layouts will eventually find demand from federal government organizations.
Some buildings have seen the last of occupancy by the DND or perhaps any other government departments without any significant investment in building systems. Some buildings will have seen the last of their occupancy by the federal government due to their floor plate and building systems which do not nor can they support Workplace 2.0. Some buildings will not work because of a lack of access to public transit nearby. These buildings are hurt.
The plans that the federal government has for how it operates in the National Capital Area, and how that will drive its real estate requirements for lease-purchase and leased accommodations, have been hiding in plain sight for a while. Those who are late to realize this and act accordingly will be hurt.
How are your plans to the DND-proof your Ottawa portfolio coming along?