Building permits in Ottawa fall amid weak office demand

New building permits are down in Ottawa despite an uptick provincewide as the federal government's slow return to in-person work seems to be dampening the city's office market.

"We're seeing a pause, there's no question," said Michael Church, the managing director of commercial real estate company Avison Young Ottawa. "There is a definite decrease in demand for office space."

Statistics Canada reported this week that $302 million worth of building permits were issued in the Ontario part of the Ottawa-Gatineau metropolitan area in March. That's down 13.8 per cent from the same time last year.

Meanwhile, building permits issued were up three per cent in Ontario as a whole.

Both Ontario and Ottawa saw drops in residential building permits. While the value of non-residential building permits shot up 55 per cent provincewide in March compared to a year earlier, it fell by about 11 per cent in Ottawa.

The fall isn't a blip. For the 12 months ending in March, non-residential permits — which include those for commercial and industrial development — are down about 17 per cent in Ottawa compared to the 12 previous months.

Church said both the private sector and the public sector are struggling to figure out what returning to the office looks like post-pandemic. But in Ottawa, the federal government is the elephant in the room.

Plans for its massive workforce have an outsize weight on the market and set a precedent for other businesses in the city.

"It's just exacerbated in Ottawa and it's so visible in Ottawa because the federal government is such a big player in our market," Church said. "It presents a challenge for us."

Vacant space means little new development

In December, the federal government announced that public servants would have to return to in-person work for at least two or three days a week by the end of March. But the recent deal with Public Service Alliance of Canada workers could lead to more flexibility for some federal employees.

Church pointed to increases in vacancy levels across Ottawa commercial real estate. With so much underused space, there's little push for new development. 

A January report by Colliers, another commercial real estate firm, found Ottawa's office availability rate reached 13.1 per cent in the last quarter of 2022, up from 8.7 per cent in the last quarter of 2019. 

Church noted existing office properties are coming off of the market as they get redeveloped to fit other uses, such as housing. Over time, he expects the market to bounce back.

Small businesses continue to struggle

With federal workers spending more time working from home, small businesses that operate downtown have also felt the ripple effects.

Corinne Pohlmann from the Canadian Federation of Independent Business, who is based in Ottawa, noted retailers in the downtown cores of other cities can rely on a range of big employers with different return-to-work plans.

In Ottawa, they're largely at the mercy of one. 

She noted foot traffic in downtown Ottawa is only beginning to pick up again.

"There is some hope now," Pohlmann said. "I think some have tried to hold on, knowing that some of the civil servants will now be coming back into the downtown core.

"But of course, again, it's not on a full-time, full-week basis, so we'll have to wait and see if it's enough."