The federal government’s plan to consolidate dozens of Department of National Defence offices will force landlords in the downtown core to spruce up their buildings in an effort to attract private-sector tenants, local brokers say.
The government announced in December of last year that it is going ahead with plans for whittling about 40 DND locations in the National Capital Region down to about seven over the next six years.
That includes moving en masse into the former Nortel campus on Carling Avenue that it purchased several years ago.
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With organizations standardizing hybrid work, Real Strategy anticipates this reduction in tenant demand to continue.
Government officials said at the time that some of the private-sector space DND is vacating will go to other departments, while the rest will end up released back into the private sector.
It’s unclear exactly how much space it will end up vacating, but local commercial real estate brokers say landlords of those buildings that are left empty will have some work to do in attracting new tenants.
“The landlords who own those older buildings are going to have to invest to get any kind of traction with them,” said Darren Fleming, managing principal at Cresa Ottawa.
He said several buildings in the downtown core – 25 Nicholas St., 141 Laurier Ave. W., 112 Kent St. – are in particular need of some work.
“These are not nice buildings,” he said.
Avison Young broker Michael Church said the ultimate outcome of the DND consolidation will be more competition among landlords.
However, he said landlords that operate downtown are in a better position because at least they have assets in good locations.
“Good real estate that’s in good locations that’s been well-maintained will always lease,” said Mr. Church.
A big question that arises with the DND consolidation is what the federal government intends to do with a multibillion-dollar surplus it is projecting starting next year.
Finance Minister Jim Flaherty has said he wants that money to go towards lowering taxes and paying off the debt.
But there are those in the commercial real estate community who feel the government may decide to start spending on programs after several years of cutting back on the size of the civil service.
Nathan Smith, a broker with Cushman & Wakefield, said landlords need to be ready in case the government decides to start hiring again.
“Buildings that landlords have not been renovating and updating and trying to constantly improve to meet the current government leasing standards, are buildings that will have a difficult time either keeping a government tenant or, more importantly, attracting a government tenant,” said Mr. Smith.
The Department of National Defence is reducing the number of office buildings it occupies in the National Capital Region from more than 40 to seven:
555 de la Carrière Blvd. (Louis Saint-Laurent Building) and 455 de la Carrière Blvd.;
241 Cité-des-Jeunes Blvd.;
Portions of 45 Sacré-Coeur Blvd. (National Printing Bureau); and
105 Hôtel de Ville St.
National Defence headquarters on Colonel By Drive (referred to as “offices in a downtown location” by the government)
1600 Star Top Rd.
Carling Campus (former Nortel complex)