A spokesperson for Public Services and Procurement Canada said Tuesday the department “does not anticipate any challenges” finding enough room in its existing portfolio for workers who will need to be in the office an extra day each week starting July 6.
The department in charge of much of the federal government’s real estate portfolio in the National Capital Region says it is looking at potentially renting additional office space to accommodate employees who will be required to work in the office four days a week starting in July.
A spokesperson for Public Services and Procurement Canada said Tuesday the department “does not anticipate any challenges” finding enough room in its existing portfolio for workers who will need to be in the office an extra day each week starting July 6.
However, PSPC also said its analysis of workspace needs shows that the expanded return-to-office mandate will mean certain departments will require more workstations and other space in certain locations.
The government is eyeing a number of options to boost its real estate footprint should the need arise, a spokesperson for the department said in an email to OBJ, including “optimizing underutilized space, renewing existing leases and potentially acquiring additional space where requirements cannot be met within the existing portfolio.”
PSPC is the federal government’s second-largest holder of floor space behind the Department of National Defence, with about 71 million square feet. Much of that is office space, and more than half of it is in the National Capital Region.
But the feds have made a concerted effort to reduce their office footprint in recent years, as the pandemic sparked a shift toward hybrid work and the government launched a campaign to make its buildings more efficient.
Three years ago, for example, PSPC announced plans to dispose of 10 aging properties in the National Capital Region, including notable downtown office complexes such as L’Esplanade Laurier and the Jackson Building, in a bid to cut operating costs and reduce greenhouse gas emissions.
Meanwhile, PSPC has been trimming the amount of space it was leasing from private landlords over the past several years. In the last quarter alone, PSPC dumped 114,000 square feet at 1550 Carling Ave. while the Canadian Food Inspection Agency vacated 112,000 square feet at 59 Camelot Dr., helping push Ottawa’s office vacancy rate to 14.3 per cent from 13.2 per cent at the end of December, according to data from real estate firm Colliers.
Still, there are signs that the feds might soon have to reverse course as the four-day-a-week mandate creates a space crunch in certain departments.
Last week, Global Affairs Canada told most of its unionized employees they will not be required to work in the office four days a week starting in July, Radio Canada reported, because there won’t be enough space for all of them.
In an internal memo, the department said the current three-day-a-week work arrangement would remain in place until “sufficient workspace” becomes available.
GAC’s directive comes as no surprise to some local commercial real estate executives and landlords who expect the feds to soon start reacquiring some of the real estate they jettisoned in the wake of the pandemic – even as the government eyes cuts that are eventually expected to reduce its workforce by tens of thousands of employees.
“This is the great reveal that we’ve all been predicting, that the feds will need to take a look at their inventory, be strategic and that the math didn’t add up in terms of the space they have,” said Shawn Hamilton, a principal at Proveras Commercial Realty.
Hamilton said the government appears to be reassessing its real estate requirements on the fly as the July 6 shift to the four-day-a-week mandate approaches.
“The jig is up in terms of the feds needing more space,” he said. “I would be going through a department-by-department inventory of everything that is needed, mapping out those needs and turning it into tangible space requirements.”
Veteran commercial broker Darren Fleming said it was “inevitable” that federal departments like GAC would end up having to backtrack on plans to bring employees into the office more often.
Many government departments now require workers to book spots at unassigned desks, Fleming noted. Increasing the number of days employees have to be in the office means more competition for those spots.
“Human nature, if I have to come in most of the time, it’s annoying not to know where you’re going to sit,” said Fleming, the CEO of Real Strategy Advisors. “Figuring that stuff out is hard. This will raise the demand for space, no question.”
'Trophy' buildings will benefit
Owners of top-tier office properties such as Constitution Square and Minto Place are most likely to reap the rewards should the feds start adding to their office footprint, he added.
“It probably is a good sign for class-A buildings, because those well-renovated, newer buildings are the ones that make sense for the federal government to occupy,” Fleming said.
Various federal departments have recently moved out of Constitution Square and other buildings such as nearby 333 Laurier Ave. W. when their leases expired, Hamilton noted, making them obvious locations for the feds to return to.
“These are all blocks of space that exist because the feds came out,” he said. “They know the landlords, they have a relationship. These would be easy places to go back into. They came out of these spaces literally months ago. It’s almost like nobody saw this coming, which blows me away.”
Dominic Dostie, a senior vice-president of CBRE’s Ottawa office who oversees leasing at Constitution Square, said he is “patiently waiting” for the feds to start requiring space.
They’ve vacated about 200,000 square feet of space – or roughly 20 per cent of the downtown office complex’s total leasable footprint – since 2019.
Dostie said most of the 150,000-square-foot chunk that Natural Sciences and Engineering Research Council of Canada left in 2019 has been backfilled by the private sector and non-profit organizations such as the Canadian Institute for Health Information, but about 50,000 additional square feet that was vacated more recently is still up for grabs.
The three-tower, 1.1-million-square-foot office property currently has a vacancy rate of about 25 per cent, but Dostie says his firm is “making some good progress” with potential tenants and hopes to see the rate fall by up to 10 percentage points within the next 12 months.
He expects the feds to account for some of those new deals.
“They're a big animal, and it takes time for these transitions to kind of filter through,” Dostie said. “We’re still patiently waiting for them to get into acquisition mode. I think they don't have a choice. They’ve given back quite a bit of space over the last few years. They haven't made an acquisition of scale for quite some time, and they've hired a tremendous amount of public servants in the last five years.”
Just a couple of blocks away, Minto Place has five empty floors covering about 100,000 square feet that are attracting more interest from potential tenants in the private sector, said Lindsay Hockey, a vice-president at Colliers’ Ottawa office who handles leasing for the complex.
But Hockey also sees opportunities for the feds to help backfill some of the vacant real estate in the three-building complex, which features about 950,000 square feet of leasable space.
Minto Place’s current tenants include Infrastructure Canada, the Canada Revenue Agency and the Immigration and Refugee Board of Canada, meaning the feds are “already in the building in a big way,” Hockey noted.
“What better way to deal with a significant amount of vacancy than if you can convince the feds to look at your building?” he added. “We’re trying.”
Hockey said landlords are looking at ways to “streamline the process” of signing deals with government departments so property owners can fill vacancies faster.
“If they’re realizing that they’re short on space and there’s a tight timeline to correct and meet objectives that they’ve set publicly, that's not going to happen going through the normal tendering process that they run. We’re trying to find ways where we can help them make educated decisions more quickly.”
Across town at Ottawa’s largest privately owned property management company, Colonnade BridgePort vice-president of leasing Brent Arseneau says he has a “certain level of sympathy” for officials at PSPC in their quest to negotiate deals with private landlords.
After slashing its real estate footprint as the world moved to hybrid work, the government is now grappling with how to swing the pendulum back the other way, Arseneau explained.
But even departments that have been champing at the bit to renew leases or expand their offices found themselves in limbo until the federal budget was finally passed in late March, he added.
“Now with the return to work, you’re seeing them saying, ‘Actually, I think we need this space,’” Arseneau said. “They were in a position where they really couldn’t do anything because the user groups had no authority to move things forward. There was a tremendous amount of handcuffs put on them prior to having an approved budget.”
Now, with federal cash flowing again, Colonnade BridgePort is back at the table negotiating lease extensions with several government clients. Arseneau predicts there will be more extensions – and some brand-new deals – to come over the next several months as the feds get a better handle on their longer-term real estate outlook.
“I don’t think that every single segment of the federal government needs more space,” he said. “I am hopeful that the (departments) that were proactive and did downsize are now saying we have to be proactive and secure a little bit more private-sector space. A number of discussions that couldn't have occurred prior to the budget being approved are now occurring. It’s very nice to see.”
Downtown at Proveras, Hamilton says property owners and managers are “coiled like a spring” as they anticipate a wave of new signings with government tenants.
“The landlord community is open for business wanting to do fair and reasonable deals with the federal government,” he said. “The solution is there. Now it’s time for them to take the space.” 
