The head of the city’s largest property management firm says the federal government needs to be “much more transparent” about what it plans to do with its downtown office footprint so landlords can start preparing now for future vacancies.
Colonnade BridgePort chief executive Hugh Gorman told OBJ he’s disappointed with Public Service and Procurement Canada’s piecemeal approach to releasing information about what local office properties it wants to dispose of and how much it plans to trim its leased office component as it reviews its 10-year plan.
“They’re relying on people to go find the information as opposed to (being) up front and explaining what’s going on so that everybody can understand and plan and adapt,” Gorman said in an interview on Friday afternoon.
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“There’s some urgency to this. We don’t have forever to respond. The downtown core is hurting right now. The city, the real estate community, downtown businesses shouldn’t have to be trying to fill in the gaps about what this really means. PSPC needs to be transparent about what it means.”
Gorman was responding to PSPC deputy minister Paul Thompson’s statement to a House of Commons committee earlier this week that the department now expects to reduce its office portfolio by up to 50 per cent over the next decade as opposed to its previous target of 40 per cent amid an ongoing shift to hybrid work.
The federal government has more than 300 million square feet of space across the country, most of it held by the Department of National Defence. PSPC controls the second-biggest chunk of space, with about 74 million square feet – nearly 67 million square feet of which is devoted to office use.
More than half of PSPC’s office footprint – about 41 million square feet – is located in the National Capital Region, consisting of a “combination of Crown-owned, leased, and lease-purchased office space,” according to the department.
Last month, PSPC released a list of 10 office buildings in the Ottawa region it plans to put up for sale, including the L’Esplanade Laurier complex and the Sir Charles Tupper Building on Riverside Drive.
Meanwhile, the department said this week it’s still evaluating “how to best optimize” its leased office portfolio.
“We continue to work with client departments and agencies to establish their long-term office space requirements,” it said in a statement to OBJ. “We will use this information to assess where and how many leases need to be renewed.”
Gorman said the feds have been “foreshadowing” their desire to offload more office space for “some time.” But he said PSPC needs to be clearer about its objectives.
“A lack of information creates uncertainty,” said Gorman, whose firm manages more than nine million square feet of space and rents about 25 per cent of it to the federal government. “Capital doesn’t like uncertainty. It smells like risk, and capital avoids risk.”
As the government shifts its portfolio to more energy-efficient buildings in a bid to reduce greenhouse gas emissions, private-sector landlords want to know what investments they’ll need to make and which properties will most likely require upgrades, he added.
“What we need them to say is, ‘This is what our accommodation requirements are and we think our footprint in Ottawa will be X in two years and X minus Y in three years … and the market will have to react to that,” he explained.
“People need to understand what that looks like. Because if you’re going to reinvest in a building to meet their standards for leased accommodation, you need capital to do that. If there’s uncertainty, it’s hard to raise that capital. If (PSPC) is not going to be clear about those things, then how do they expect the market to … be able to accommodate them and upgrade their buildings, green the buildings, to meet those standards?”
Michael Church, managing director of Avison Young’s Ottawa office, agreed that the uncertainty surrounding the feds’ plans is making the market a bit skittish.
“That’s absolutely true,” he said. “I know exactly where (Gorman) is coming from.”
Still, Gorman and other real estate insiders said they expect the market to regain strength over time as property owners retrofit newer buildings and convert older, decaying properties to other uses such as residential complexes.
“I think quite frankly the industry was a little too reliant on the feds in the past,” Gorman said. “We’re going to have to adapt. I think what you’re going to see is a natural greening of the portfolio. High-quality buildings are still going to be targets for occupancy from the feds. I think it’s more of an opportunity than it is a challenge in the long haul.”
Louis Karam, managing director of CBRE’s Ottawa office, said the federal government’s move to cut its office portfolio will be a “long, slow process” that will give owners time to adjust and reimagine their properties.
“Landlords need to invest in their buildings … in order to attract tenants and employees back to the office,” Karam said.
“This is going to put a little bit more pressure on the class-C buildings in our downtown that will have no choice but to look at conversion, whether it’s into multi-res, whether it’s attracting the life science sector. The private sector is going to have to find a way to absorb it over time, and I think it’s going to be better for the city in the long run.”