sgera
Nov 18, 2010, 4:43 PM
http://www.obj.ca/Opinion/2010-11-17/article-1972492/The-Kanata-question-where-will-the-pieces-fall/1
For over two years I’ve been anticipating the sale of Nortel’s Carling Avenue campus with a mixture of excitement and foreboding. When would it sell? Who would buy it? What would they do with it?
Now, of course, we know that by the end of the year, Public Works will take ownership of the entire campus as a future home for the Department of National Defence and that they have already indicated that at least one of the tenants, Ciena, might be shown the door. Word on the street is that it is likely that the other three tenants (Genband, Avaya and Ericsson) could also be displaced, and I can personally confirm that at least two of these parties are already out looking for a potential new home.
So what does the sale of the Nortel Campus herald for the Kanata market?
What remains unknown is how much space these four firms will continue to require on a short, medium and long-term basis if they are forced out by DND. The property they currently inhabit was designed and built by Nortel at a time when budget consciousness wasn’t a requirement.
It begs the question: would the present tenants be willing to bear the significant cost of replicating existing operations in another building – including the vast clean rooms and computer labs – should they be unable to stay put, or will they instead slash their present workforces and/or relocate to another market?
Firstly, a quick recap on the current situation: according to Altus Insite, the vacancy rate in Kanata sits at 17 per cent, representing around 882,000 square feet of empty space in a sub-market made up of 68 office buildings, totalling 5,200,000 square feet of competitive space.
In addition, as mentioned in my previous column, the majority of large pockets of available office space in Kanata have either been leased or are in the process of being carved up into smaller pockets.
Many people, including myself, have previously speculated that the likely outcome of a government purchase of 3500 Carling Ave. would result in the displaced tenants leasing large quantities of existing space, resulting in a very rapid decrease in the amount of total vacancy and quickly bringing Kanata back to a more balanced market – if not outright favouring the landlords.
But it seems more likely now that if a company such as Ciena, which currently occupies 265,000 square feet, is displaced and wants to keeps all its employees under one roof, that without any available existing buildings to consider in that size range, we’ll likely see new construction within the next 18 to 24 months.
The immediate impact of this on Kanata’s market would be relatively flat, as the majority of any space built would immediately be backfilled by tenants leaving Nortel. That means the existing inventory of available office space would largely be left untouched.
The downside is that one or more of these companies could decide that putting up a new building would be too cost prohibitive, and move to dramatically downsize their local workforce. This kind of decision would be influenced by the cost of construction but also by the availability of government subsidies designed to promote job creation.
Don’t forget that the Ontario government paid Dell $5,000 per head under the Apprenticeship Training Tax Credit program as an incentive to bring 150 jobs to Ottawa, and that was for a paltry 150,000-square-foot call centre whose typical worker earned a salary under $30,000 per year. In comparison, many of the jobs in question at Avaya, Ericsson, Ciena and GENBAND are high-paying positions and, in several cases, their employee base is over twice the size of Dell’s former workforce.
This has the potential to make the competition to retain these jobs – or attract them elsewhere – very fierce.
In the end, I think the popular belief that these displaced companies will suddenly eat up all of Kanata’s empty office space and send vacancy rates plunging while causing office rents to quickly rise is probably too simplistic and not very likely to occur.
Personally, as both a commercial realtor and former infantry soldier, I have a hard time believing that a security-conscious user such as DND would be willing to tolerate a shared office campus for anything other than a short transition period – if at all.
So I feel comfortable in predicting that come spring, once Public Works takes formal possession of the Nortel Campus, we will see a flurry of activity as these four, soon-to-be-evicted technology companies kick their search for new homes into high gear.
And while this won’t necessarily (or even likely) translate to lower vacancy rates and higher rental rates in Kanata, it should make for one heck of an exciting show.
Darren Fleming is managing partner at CresaPartners.
For over two years I’ve been anticipating the sale of Nortel’s Carling Avenue campus with a mixture of excitement and foreboding. When would it sell? Who would buy it? What would they do with it?
Now, of course, we know that by the end of the year, Public Works will take ownership of the entire campus as a future home for the Department of National Defence and that they have already indicated that at least one of the tenants, Ciena, might be shown the door. Word on the street is that it is likely that the other three tenants (Genband, Avaya and Ericsson) could also be displaced, and I can personally confirm that at least two of these parties are already out looking for a potential new home.
So what does the sale of the Nortel Campus herald for the Kanata market?
What remains unknown is how much space these four firms will continue to require on a short, medium and long-term basis if they are forced out by DND. The property they currently inhabit was designed and built by Nortel at a time when budget consciousness wasn’t a requirement.
It begs the question: would the present tenants be willing to bear the significant cost of replicating existing operations in another building – including the vast clean rooms and computer labs – should they be unable to stay put, or will they instead slash their present workforces and/or relocate to another market?
Firstly, a quick recap on the current situation: according to Altus Insite, the vacancy rate in Kanata sits at 17 per cent, representing around 882,000 square feet of empty space in a sub-market made up of 68 office buildings, totalling 5,200,000 square feet of competitive space.
In addition, as mentioned in my previous column, the majority of large pockets of available office space in Kanata have either been leased or are in the process of being carved up into smaller pockets.
Many people, including myself, have previously speculated that the likely outcome of a government purchase of 3500 Carling Ave. would result in the displaced tenants leasing large quantities of existing space, resulting in a very rapid decrease in the amount of total vacancy and quickly bringing Kanata back to a more balanced market – if not outright favouring the landlords.
But it seems more likely now that if a company such as Ciena, which currently occupies 265,000 square feet, is displaced and wants to keeps all its employees under one roof, that without any available existing buildings to consider in that size range, we’ll likely see new construction within the next 18 to 24 months.
The immediate impact of this on Kanata’s market would be relatively flat, as the majority of any space built would immediately be backfilled by tenants leaving Nortel. That means the existing inventory of available office space would largely be left untouched.
The downside is that one or more of these companies could decide that putting up a new building would be too cost prohibitive, and move to dramatically downsize their local workforce. This kind of decision would be influenced by the cost of construction but also by the availability of government subsidies designed to promote job creation.
Don’t forget that the Ontario government paid Dell $5,000 per head under the Apprenticeship Training Tax Credit program as an incentive to bring 150 jobs to Ottawa, and that was for a paltry 150,000-square-foot call centre whose typical worker earned a salary under $30,000 per year. In comparison, many of the jobs in question at Avaya, Ericsson, Ciena and GENBAND are high-paying positions and, in several cases, their employee base is over twice the size of Dell’s former workforce.
This has the potential to make the competition to retain these jobs – or attract them elsewhere – very fierce.
In the end, I think the popular belief that these displaced companies will suddenly eat up all of Kanata’s empty office space and send vacancy rates plunging while causing office rents to quickly rise is probably too simplistic and not very likely to occur.
Personally, as both a commercial realtor and former infantry soldier, I have a hard time believing that a security-conscious user such as DND would be willing to tolerate a shared office campus for anything other than a short transition period – if at all.
So I feel comfortable in predicting that come spring, once Public Works takes formal possession of the Nortel Campus, we will see a flurry of activity as these four, soon-to-be-evicted technology companies kick their search for new homes into high gear.
And while this won’t necessarily (or even likely) translate to lower vacancy rates and higher rental rates in Kanata, it should make for one heck of an exciting show.
Darren Fleming is managing partner at CresaPartners.