Op-ed: There is desperate optimism in Ottawa’s office real estate market

I had the pleasure last week of attending the Ottawa Real Estate Forum, an event I look forward to every year. It’s a chance to reconnect with colleagues, hear what’s changed over the past 12 months and look ahead at coming trends. For me, the highlight is always the update from the federal government on the future of its office portfolio. This year was no different. If I had to capture the mood of this year’s forum in a phrase, it would be desperate optimism. According to some, there’s a rising expectation that, because provincial and municipal governments have mandated employees back to the office five days a week, the federal government will follow suit. Hopes are pinned on an expected announcement regarding a return to five days in the office coinciding with the November federal budget to restore a sense of stability to Ottawa’s office market — a market long seen as a safe haven for institutional capital  in office assets anchored by government-backed leases. I don’t share that optimism. While the federal government has scaled back its intention to shrink its office footprint — from a 50 per cent reduction to 30 per cent over 10 years — the writing is on the wall. Federal departments are investing heavily in their owned buildings, not to expand, but to retrofit for greater density and more efficient use of space. Global Affairs Canada and several Gatineau properties are clear examples. Many have been gutted back to the concrete, calling into question where would public servants suddenly ordered back to the office even go? Even if the federal government shifts from three or four days a week to four or five, no one expects a return to 100 per cent assigned seating or rows of paper-filled cabinets. The workplace is now digital, video-enabled and flexible. It also takes up less space. The way we work has changed in 2025 and you can’t put the horse back in the barn labeled 2018. The industry narrative that “the office market is back” is misleading. What we are really seeing is activity concentrated in a small number of premium Class A buildings. Landlords can command high rents in these towers, but only because tenants are downsizing — trading square footage for quality. With construction costs skyrocketing, deals for high-quality tenants are being closed with incentives that amount to three years of free rent or generous cash allowances. Meanwhile, the story is grim for Class B and C buildings, where vacancy rates hover between 25 per cent and 30 per cent — in some cases even higher. The truth is that demand for office space has shrunk and it will take decades of population and economic growth to fully replace those “bums in seats.” Even five-day mandates aren’t what they seem; the provincial and municipal governments have carved out exceptions for employees requesting flexible or remote arrangements. Today, employers value talent more than ever. They know that accommodating personal needs and mental health isn’t just humane, it’s smart business. Meeting employees where they are, treating them as valuable contributors and creating workplaces they want to be in isn’t just altruism. It drives harder work, stronger loyalty from employees and even a willingness to trade compensation for a job they love. Pair that with spaces designed for well-being — with natural light, clean air and beauty — and you have the formula for a resilient office market. The way forward is not coercion. It’s not dragging employees back to the office for another Teams call. It’s building environments where people want to gather, thrive and contribute. That’s how we will navigate this destabilized market: through love, work and amazing space. Darren Fleming is the CEO of Real Strategy Advisors.