Federal cuts to take seven years to hit local office market

Local landlords won’t know the full effect of federal downsizing efforts until at least 2020, one of the government’s top real estate officials said Thursday.

Pierre-Marc Mongeau, the assistant deputy minister of the real property branch of Public Works and Government Services Canada, said the department is still dealing with what he calls the “Swiss cheese effect.”

The government has been steadily laying off thousands of its employees during the past few years, leaving behind holes in the buildings it occupies where there are no longer any people working.

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It can’t simply dispose of the space because it either owns buildings outright or, in many cases, are locked into long-term leases.

That’s why the governing Conservatives have given them seven years to consolidate employees left behind to make sure there aren’t as many unoccupied pockets of office space.

“What we will have to do is look at the portfolio, reduce this vacant space and make sure that this Swiss cheese effect…will disappear,” said Mr. Mongeau, speaking Thursday morning at the Ottawa Real Estate Forum.

However one real estate official says by the time that happens, the government will be in a position to start hiring and Public Works will again be in the market for new real estate.

That would mean the Conservatives’ current downsizing efforts would have a negligible impact long-term impact on the government’s demand for office space.

The government initially wanted Public Works to figure it out in three years, said Mr. Mongeau, but ended up giving them seven because they have a number of long-term leases with the private sector.

Ottawa real estate officials are still trying determine the lasting impacts of the government, the largest office space tenant in the region, reducing its workforce.

The evidence suggests that demand is going to shrink as supply increases.

In addition to reducing its workforce, the government is trying to provide each of its employees less space with which to work through an initiative known as “Workplace 2.0.”

Public Works is also planning to dispose of a number of its core assets as they wear down in the coming years, Mr. Mongeau said. He declined to go into detail about what exactly that meant.

But while landlords try to determine the immediate impact of those developments, the Swiss cheese effect suggests that the full effect of the layoffs won’t be known for several years.

That may not be a bad thing, said Nathan Smith, a senior vice-president with brokerage firm Cushman & Wakefield Ottawa.

The governing Conservatives have promised to balance the budget by 2015, he said, meaning it will automatically be back in a surplus the year after that.

“Seven years is going to take us out past ‘15, so as you’re getting into the later stages of this downsizing or restructuring you’re actually going to have surpluses to start implementing new programs and growing programs that you already have,” he said, speaking briefly after Mr. Mongeau’s talk.

Sidebar: The federal government in the National Capital Region by the numbers

-139,000 employees

-110 departments, agencies and Crown corporations

-80 crown-owned buildings

-183 privately-owned buildings from which it leases space

-$600,000 in rent paid out to the private sector each year

(Source: Pierre-Marc Mongeau, Public Works)

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