Ottawa’s top employer is showing no signs of encouraging its staff to return to their offices, but commercial real estate industry veterans say now is not the time to panic about a mass exodus from the city’s downtown core.
The federal government employs more than 120,000 people in the Ottawa region, according to the Treasury Board of Canada, and Ottawa-Gatineau’s total office inventory is pegged at approximately 41-million-square feet, according to CBRE Group Inc., with the federal government occupying 40 per cent of the office space in the city and owning 68 office buildings.
So, what’s a city to do when its largest commercial real estate tenant may keep its office workers at home for the long-term?
Despite “sleeping with an elephant,” Martin Aass, broker of record and managing principal of Cresa, based in Ottawa, says of the federal government’s massive impact on employment and office space, things aren’t as bad as they may seem at first blush – even with the city’s corporate crown jewel, Shopify, putting 170,000 square feet of space on the sublease market in early September.
If the federal government continues to encourage work-from-home for just 20 per cent of its work force, 10 per cent of the whole of Ottawa’s downtown would be vacant, Mr. Aass says, adding that the federal government tends to move slowly.
“We haven’t heard about departments downsizing or changing their footprints,” he says. “That’s not immediately in the cards.”
Mr. Aass says in speaking to Ottawa landlords they are starting to hear discussions around government entities surrendering space. That was to be expected, he explains, given how much money has been injected into various parts of the Canadian economy through COVID-19 relief programs.
“They want to save money,” he says.
Alain Belle-Isle, a spokesperson for the Treasury Board of Canada (the government’s employer), said in an e-mail to The Globe and Mail that the government is reviewing its “human resources policies and practices.”
He said employees of every organization under the federal umbrella who need or want to come back to work are given reasonable notice before returning. It doesn’t, however, seem like Ottawa’s biggest group of office dwellers will be doing that anytime soon.
“As public health authorities have signaled that physical distancing requirements will remain in place, many employees will continue to work remotely for some time to come,” he said.
Ashley Hopkins, chief executive officer of Paradigm Properties – a commercial property management firm in Ottawa with government clients – says during the onset of what was dubbed “Workplace 2.0,” in the early 2010′s, there was concern that Ottawa’s downtown office space would become a wasteland after the government shrank its footprint by 25 per cent. That doomsday never came, however and recent conversations with those in the federal work force are pointing to a hybrid model of work from both the office and home, she says.
“People can’t work from home forever,” Ms. Hopkins says. “The doom and gloom [about] all the businesses going bankrupt because no one would be working from the office shouldn’t be as heavy.”
While Ottawa has experienced some softness in its commercial real estate market in the past, urban technology companies such as Shopify, SurveyMonkey and Telesat flourished in the government’s place – like when it downsized in the mid-2000′s – according to one Ottawa commercial real estate expert. Technology is now the second-largest user class in the city’s downtown core.
“Ottawa has been isolated by ups and downs in the market because we’ve always been a government town,” says Shawn Hamilton, senior vice-president of CBRE Ottawa Inc. “[Shopify] putting space on the sublease market is our first foray into acting like we have a private, sector-driven downtown core. We’re going to be sensitive to the ups and downs that come with that until we get used to it.”
Courtney Schaefer, a researcher with CBRE in Ottawa, says an increased presence of urban tech in the city’s core means swings in vacancy rates will also increase as the tech industry responds more rapidly to economic change than does the government.
That’s not a bad thing, she points out, for a city that is becoming a major tech hub in North America.
“It is inevitable that vacancy rates increase during uncertain times,” Ms. Schaefer says. “It happened in the early 1990′s, 2000 and 2008 and [now] we’re seeing signs of rising vacancy rates in response to the COVID-19 pandemic – primarily due to Shopify placing space on the market for sublease.”
Ms. Schaefer adds: “Our view is that this phenomenon is cyclical; and with all cycles, there will eventually be a period of recovery.”
Some real estate pundits feel Shopify putting its whole Elgin Street office on the sublease market is sparking some of the local concern Ms. Hopkins alluded to. But that shouldn’t be the case, says Rai Sahi, chief executive officer of Morguard Corp., and the landlord of Performance Court at 150 Elgin St.
Shopify is keeping its other office in the city’s downtown core, and Mr. Sahi says Morguard and Shopify have not had any serious discussions about the space at this point.
“We’re not concerned about it. Morguard is the largest landlord in Ottawa, as well as the largest landlord of the provincial and federal governments,” Mr. Sahi said. “Each office is just four walls.”
Mr. Sahi says it wouldn’t be difficult to rework the footprint of Shopify’s space for other tenants. Since it’s on the sublease market, Shopify will have to bear some of the responsibility of finding a new tenant for its space.
“Either we’ll work out a deal with them or we will lease it,” he says.
Even with the nearly 200,000-square-foot Shopify space now on the market, the total sublease market in Ottawa is below the 17-year average of 600,000 square feet.
It’s a far cry from 2003, according to CBRE data, which showed 2.1 million square feet available. In 2008, there was one million square feet available.
While some Ottawa experts feel the federal government could occupy Shopify’s space – given its idyllic location in downtown, Mr. Hamilton says it’s more likely a group of startups, or a U.S. company keen to take advantage of Canada’s welcoming immigration policies and Ottawa’s sizeable tech talent pool, could slide in.
Despite the federal government’s hesitation to bring its massive Ottawa-based work force back to the office, “for every business that is heading out the door,” Ms. Hopkins says, “there seems to be another one behind it.”