Will Federal Downsizing Flood Ottawa’s Office Market? What Landlords Should Actually Expect

Over the past year, headlines warning of a mass federal exodus from Ottawa’s office towers have stirred anxiety among commercial landlords. With nearly 10,000 federal public service jobs cut, according to recent reporting, many are wondering: will this downsizing flood Ottawa’s office market and trigger a collapse in demand? The short answer, broadly speaking, is: not necessarily – and there’s good reason for landlords (especially those in the business of leasing and managing office properties) to temper alarm with realism.

1. The Scope of the Cuts, And Why It May Not Be as Dire as It Sounds

Indeed, the federal public service contracted by roughly 10,000 employees in the past year. CP24+1 Given that government clients account for more than half of Ottawa’s office footprint, that news understandably rattled the real estate community. But market experts, including CBRE’s Dominic Dostie, suggest this isn’t a death knell for landlords. As he puts it, in a city with 150,000+ federal workers in the National Capital Region, a 10,000-person decline is “not overly significant.” CBRE

Large-scale layoffs of long-term, office-anchored staff. CP24 In other words, these were among the most transient parts of the federal workforce, likely less tied to long-term real estate commitments – and less likely to trigger mass surrender of leased footprints.

2. Downsizing Isn’t Unilateral, The Government Is Still Committed to Office Space

While the cuts are headline-grabbing, it’s equally important to note that the federal government hasn’t yet dramatically slashed its physical office portfolio. According to a report by the Auditor General, efforts to reduce space began in earnest only in 2024 – and so far, just 2% of its footprint has been eliminated. BNN Bloomberg+1 The slower pace reflects both funding constraints and the inherent complexity of renegotiating leases and reshaping a massive real-estate portfolio.

In fact, the Auditor General’s report underscores that almost half of federal tenants had not signed up for space-reduction agreements, which could delay or dilute further downsizing. BNN Bloomberg For many landlords, this means that while federal downsizing is real, it’s unfolding gradually – and not as a wholesale flight from Ottawa buildings.

3. Ottawa’s Office Market Remains Resilient (and Selective)

To understand the real impact, one must look at the numbers – and they tell a nuanced story. According to the Colliers Q2 2025 report, Ottawa’s vacancy rate actually declined to 10.8% after three straight quarters of improvement. Colliers Canada That suggests demand isn’t collapsing, even as some space is being returned.

On top of that, there has been a flight-to-quality, with tenants favouring modern, amenity-rich Class A offices. Colliers Canada Hybrid work is reshaping demand: tenants may lease less overall square footage, but they are more selective, prioritizing quality, flexibility, and location.

Avison Young has similarly noted that despite job growth in the federal sector over the past five years, vacancy has risen – from about 6.3% in early 2020 to nearly 9.4%. Avison Young This paradox underscores that workplace policies (like Return-to-Office mandates) and the configuration of workspace may matter more than sheer headcount in driving leasing patterns.

4. Risks Are Real - but Not Uniform

That said, risk is not nonexistent. A few pressures are worth highlighting for your company, both as a landlord and a property manager:

Shadow vacancies: According to CBRE’s outlook, some “shadow vacancies” may emerge as underused spaces come back to market, especially if departments don’t immediately re-lease or dispose of them. CBRE
Slow modernization: The Auditor General flagged that modernization of older federal offices is lagging. Some space may be underutilized simply because it hasn’t been adapted to new working models. BNN Bloomberg
Redevelopment uncertainty: While reducing office space is on the agenda, converting decommissioned federal buildings (e.g., to housing) depends on complex negotiations and long timelines. BNN Bloomberg+1

Submarket divergence: The Ottawa office market is not monolithic. Suburban markets like Kanata are showing strength, driven by demand from the tech and defence sectors, while downtown availability remains elevated. Avison Young

5. What Landlords Should Actually Expect - And How to Navigate

Given the above, here’s a more realistic playbook for landlords and commercial property managers in Ottawa:

Assess Tenant Mix and Risk Exposure
- Run a detailed audit of your tenant roster. How much of your leased space is federal or government-related? Are there upcoming lease expirations or sublease risks?
- Model for gradual space returns – not a sudden flood. Given the slow pace of actual downsizing, you’re likely looking at incremental turnover over years, not weeks.
Double Down on Product Differentiation
- Invest in value-add opportunities: modernize older buildings, offer flexible layouts, and add amenity-rich features that appeal to tenants seeking quality over quantity.
- Promote sustainability and hybrid-work adaptability – these are increasingly central for tenants balancing cost and utility.
Proactively Market to Non-Government Tenants
- Explore growth sectors: tech, professional services, defence, and related industries are showing healthy demand, especially in suburban submarkets.
- Use data to show the upside: vacancy is not uniformly rising, and segments of the market (e.g., Class A suburban) remain attractive.
Engage in Strategic Repositioning
- For buildings at risk of long-term vacancy or underutilization, evaluate redevelopment or adaptive reuse. Mixed‑use conversion (residential, co-working, labs) could unlock value.
- Partner with developers, municipalities, or even the federal government. Given the government’s stated goal to divest and repurpose assets, there may be future opportunities for collaboration.
Leverage Property Management Strengths
- As a property manager, help tenants navigate uncertainty by offering flexible lease structures, turn-key office fit-outs, or subleasing support.
- Use data-driven insights: regularly track absorption, tenant demand, and renewal activity to anticipate and mitigate risk before it crystallizes.

6. The Bottom Line: Cautious Optimism

Yes – federal downsizing is happening, and it introduces risk to Ottawa’s office real estate landscape. But it’s unlikely to unleash a sudden, market‑wide flood of returned leases that would tank the office market overnight.

Landlords should neither ignore the risk nor overstate the threat. Instead, the most prudent path lies in preparation, differentiation, and adaptability. By leaning into quality, flexibility, and long-term repositioning, your company can not only weather this shift but position its portfolio to thrive amid evolving office demand.

Will Federal Downsizing Flood Ottawa’s Office Market? What Landlords Should Actually Expect