Ottawa office market experts left in the dark over feds’ return-to-work needs

Morguard Corp., the seller, pegged the value of the transaction at $148.2 million in a press release. The deal is expected to close at the end of August.

The property in question has been home to House of Commons staff since it was built two decades ago, but a spokeswoman for Public Services and Procurement Canada — steward of the federal office portfolio — said the acquisition was about “prudent financial management.”

“By transitioning from tenant to owner, PSPC is expected to realize long-term savings for the Crown,” department spokeswoman Michèle LaRose said in an email to The Canadian Press.

Treasury Board officials announced last month that executives in the public service will be required to attend the office full-time starting in May, and the rest of the public service must be in the office at least four days a week starting in July.

“PSPC is reviewing office space requirements following the recent announcement of increased on-site presence for executives and employees. This analysis will help inform our long-term strategy for office space, including within the downtown core,” LaRose said in her email.

Mitch Strohminger, director of market analytics for Eastern Canada at CoStar Group, said it’s possible the feds wanted to buy a building they already occupy to give them flexibility to open up the space to desk-sharing, or to make other changes to accommodate more in-person work.

As public servants’ in-office requirements are set to increase, it’s not clear to observers whether there will be enough office space to accommodate the extra bodies in the workplace.

“I think a lot of people in Ottawa in the brokerage community and a lot of real estate professionals within the city that I talked to have kind of been asking that same question,” said Strohminger.

Federal public service unions and workers have warned there isn’t enough office space to support the federal government’s new mandate.

The Public Service Alliance of Canada has said there is already a shortage of federal office space and warns “the chaos will only get worse” as workers’ in-office time increases.

The acquisition of 131 Queen St. comes after the federal government spent years promising to off-load office space.

In the 2024 budget, the government said it would cut its office portfolio in half over 10 years through sales or leases. The document said PSPC had more than six million square metres of office space across the country and about half of it was underused or vacant.

A 2025 ministerial transition binder prepared for Minister of Government Transformation, Public Works and Procurement Joël Lightbound said “recent developments” have undermined the government’s goal of off-loading half of its office portfolio by 2034.

In the document, the government said it was projecting it would get rid of about one-third of its office space over the 10-year period.

The document said the original plan has been affected by the growth in the number of employees who need office space, new rules on the transfer of surplus assets, and the updated directive that sets out how many days public servants must be in the office.

PSPC said in February that “given the increase of on-site presence for employees, the reduction target will be adjusted accordingly” and that “planning in this regard is underway.”

That strikes Hamilton as a bit backwards.

“I would have suggested that, to be strategic, the federal government should have done their mathematical equations first, leased space, and then made the announcement, but they’ve chosen to do it the other way,” he said.

The federal government has indeed exited a number of buildings in Ottawa’s downtown core over recent years, Hamilton said. He estimated the feds have given up a million square feet of space leased from the private sector over the past five years.

Large blocks of office space are still available in the downtown core if the federal government needs it, Hamilton said, though many of the top-line, class-A office buildings are facing tight vacancy rates.

He said landlords are waiting for a clear signal from the feds about how much space the government will need.

“Now is the time for the federal government to provide some sort of calm and clarity on their back-to-the-office strategy,” Hamilton said.

Strohminger said one factor that could limit the surge in demand for federal office space is the Liberal government’s plan to shrink the size of the public service.

The government plans to cut the number of public service jobs by about 40,000 from a peak of 368,000 in 2023-24. Treasury Board data shows that as of March 2025, there were 357,965 federal public servants. Of those, 153,979 lived in the National Capital Region.

“You might see a stabilization in demand from the government because you have these two countervailing trends,” Strohminger said.

Hamilton said the federal government is important to Ottawa’s downtown office market, not just as a tenant and landlord but as a bellwether to other businesses in the core.

Ottawa has lagged behind other major North American markets on rates of in-office work, Hamilton said. While the big Canadian banks led the charge on the post-pandemic return to in-person work in Toronto, he blamed the federal government’s tepid approach for the slower pickup in Ottawa.

Hamilton said he expects other employers in the nation’s capital will follow the federal government’s lead by making in-office work the standard, rather than the exception.

“The federal government sets the tone for a lot of the work culture in Ottawa,” he said.

This report by The Canadian Press was first published March 6, 2026.

Craig Lord and Catherine Morrison, The Canadian Press

by The Canadian Press