One industry observer predicts "sick building" syndrome will plague the city's supply of class B and C office space as the quality of lower-tier buildings is degraded.
Some observers believe the syndrome is creeping into the city's supply of office space as the government absorbs class A space, especially in the downtown core.
A glut of cheap A space in the suburbs is also being snapped up by governments, both federal and municipal.
The feds bought Nortel Networks' Skyline campus for $90 million and the city has leased a former Nortel building on Constellation Crescent.
With class A buildings full of coveted government tenants, building owners will keep investing into that class, with a neglected supply of class B and C space.
"There are going to be a lot of B and C buildings that will be vacated over the next five to 10 years," said market analyst Brian Card, president of the Corporate Research Group.
"That will lead to 'sick buildings' that don't meet the building codes, which is going to need a lot of money invested."
While the ranking system is subjective, class A space is generally considered to have an excellent location, amenities, building materials, property management and tenants.
Class B and C office space are classified in comparison.
In Ottawa's core, the vacancy rate for class A space is about one per cent. This relative lack of space, in combination with extremely competitive rental rates, has prompted international and national investors, mostly pension funds and real estate investment trusts to sink their money into local class A buildings.
Recent examples include the sale of Heritage Place and the Standard Life Centre to Northam Realty, with German backing, and the Chambers to an Isreali money-backed investor.
Paul Hindo, vice-president and general manager of Royal LePage Commercial Inc., disagrees with Card.
The tight downtown market and relatively high rental rates will drive people into cheaper class B and C space as they renew their leases, he said.
"People are getting sticker shock, so they're looking at B and C space," Hindo said. "If nothing else, B and C landlords are benefiting, because they are going to see a lot more competition for space and a decline in B and C rates."
Hindo cited the building in which Royal LePage is a tenant at 220 Laurier Ave. recently underwent a renovation.
"A lot of landlords are spending more money on renovations. Some class B and C buildings have gone through some major retrofitting."
Minto Commercial Inc. doesn't own any class B or C buildings, but senior vice-president Regis Trudel said new class A space, with three buildings coming on-stream, will spur landlords to invest in improvements.
"The stock has to be continually upgraded because everyone's expectations are on the rise. New product makes it harder to compete for tenants," he said, adding a couple of downtown buildings have been completely gutted over the last decade.
