Forget Ottawa’s Economic Gloom: STANKOVIC

08/04/2025

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It seems like every time Ottawa’s downtown is faced with another economic crisis, local business and public leaders like to place blame on the federal government.

They use it as the reason why we need to diversify the local economy.

During the last 50 years there have been several periods of doom and gloom over Ottawa’s economy ranging from becoming a ghost town and a wasteland, to tumbleweeds rolling through the downtown. These predictions always seem to emerge when the federal government was undertaking major budget spending reductions and cutbacks in the size of the civil service.

Yet, Ottawa’s economy still managed to display strong resilience after each crisis.

Once again, Ottawa’s economy is facing another federal government driven crisis. In May 2024, the Ottawa Board of Trade released its downtown revitalization strategy. In it, the OBOT states that “the predominance of federal buildings – and the workers who use them – was for years one of our greatest assets but is now of our most challenging liabilities.” The OBOT strategy further states that “we’ve acknowledged our pre-COVID vulnerability in being overly reliant on one dominant employment sector, but the pandemic accelerated the need for diversification of our downtown economy.”

Just one year later, the list of “challenging liabilities” has expanded to include huge cuts in federal government spending amounting to $25 billion over three years which in turn is expected to result in large job losses for the national capital region. A report from the Canadian Centre for Policy Alternatives predicted that around 24,000 full-time federal government positions will be cut in the region (including Gatineau) by 2028.

In a July 21 2025 op-ed published in the Globe and Mail, the OBOT’s president and CAO, stated that the “city of Ottawa risks being hollowed out by the federal government.” The hollowing out refers not so much to getting civil servants back to the office but instead to the lack of decisive action on a clear work-force return to the office and surplus property disposal strategies. According to the president, the lack of clear direction on the part of the federal government has held back new investments from the private sector. The op-ed also calls for the federal government to invest in “helping the city diversify its economy and modernize its downtown.”

Below are some of my thoughts on the OBOT’s (and others) warnings about the current economic crisis period in Ottawa.

– It waits to be seen how resilient Ottawa’s economy will be now compared to previous doom-and-gloom phases because of the multiple crisis the city is currently facing. It is not only cutbacks in federal government spending and potential jobs, remote and hybrid working civil servants and empty federal office buildings that are influencing economic change. The trade-and-tariff war between Canada and the U.S. and the changing geo-political scene in an increasingly dangerous and tumultuous world will also have impacts on Ottawa because it is a G7 capital city. Also throw in the uncertain effects that artificial intelligence will have on the future of the office and workplace.

– Notwithstanding, the OBOT’s concerns over the hollowing out of Ottawa’s downtown economy, there have been several recent positive signs of economic resilience. For example, in its 2025 Canadian office market report, the CBRE observed that Calgary followed by Ottawa lead other major Canadian markets in total office space conversions. Of the 10 metropolitan markets surveyed, Ottawa also had the most notable drop in downtown office vacancy rates from Q1. The downtown vacancy rate of 15 per cent was also the second lowest among the 10 markets.

– The Ottawa International Airport Authority reported strong passenger growth in 2024 confirming “near-full recovery and set the stage for airport expansion.” Five major international hotels, including three in downtown Ottawa, have either recently completed or are planning to undergo major expansions. According to Ottawa Tourism, “we’re now back to more or less normal levels of tourism and we are growing.” The ByWard Market District Authority reported that visitors to the market are beginning to exceed pre-pandemic levels and expect the trend to continue.

– With regards to the predicted loss of 24,000 federal government jobs in the region, it is useful to note that CCPA also estimated that the area would see upwards to 22,000 full-time positions cut between 2012 and 2015 as a result of the Strategic Review and Deficit Reduction Action Plan. The actual decline ended up at about 7,400 which simply indicates that it is very hard to come up with forecasts with any confidence. Regardless under the worst-case scenario, the loss of 24,000 jobs would still bring the total to the level that existed in March 2020 before the pandemic. This is because the size of the federal public service exploded in the region during the pandemic years from 106,857 in March 2020 to 127,440 in March 2023. Furthermore, since this increase occurred during the pandemic years, the large majority of the added workers would not have been working in any downtown federal government office building.

– A recent article from the CBRE reached a comparable conclusion stating that “while the job cuts sound dramatic … they are unlikely to have a major impact on the federal government’s local-office usage” adding that “there are over 150,000 people working for the government in the national capital region” and “in that context 10,000 fewer people across different departments is not overly significant … it’s not a doom-and-gloom situation for most landlords.” The article further states that “pressure points have been mounting because there’s not enough suitable space for everyone.” I would add that these pressure points will only increase in the future when the federal government begins to unload surplus office space.

When it comes to strategic thinking around Ottawa’s economic diversification, the discussions tend to focus on how to reduce the over-reliance on the federal government primarily by supporting the growth of advanced technology-knowledge firms. Ottawa’s economic diversification aspirations should not, however, be an either-or choice. In fact, the presence of the federal government must be most critical building block to diversifying Ottawa’s economy.

However, economic diversification goes beyond trying to return to being Silicon Valley North from the high-tech boom years of the 1980s and 1990s. Instead, it should be driven based on Ottawa’s historical competitive advantage of being the nation’s capital and a G7 capital city in today’s turbulent and increasingly dangerous world. One where even Canada’s sovereignty is being challenged. For example, Prime Minister Mark Carney has committed that Canada will spend $9 billion in 2025-26 and $46.4 billion over five years. As the OBOT and Invest Ottawa have recently indicated, the federal government’s huge commitment to increased defence spending represents growth opportunities for Ottawa’s technology sector.

Outside Canadian companies involved in global trade, defence and cyber security will also find it advantageous to at least have a presence in the area further strengthening the local defence cluster. Negotiations with key federal government officials in such high-security, high-risk sectors cannot be done by emails, text messaging, phone calls or remote conferencing. Instead, it requires old-fashioned face-to-face interaction which, in turn, could lead to the creation of small satellite offices in the downtown.

Being the home of foreign embassies and consulates representing every potential trading nation in the world also provides locational advantages for Ottawa that cannot be duplicated in other Canadian cities. The presence of foreign embassies also provides opportunities for organizations such as Invest Ottawa as well as the city to foster collaborations and knowledge exchange involving entrepreneurs and technology startups in the global innovation network. For example, a collaboration between universities and technology companies in Liverpool and South Korea are creating, with the help of AI, a computer-based copy or ‘digital twin’ of the city’s public transportation network to test different options for improving transit services and assessing the impact on communities.

Lastly, as downtown Ottawa continues to be attractive to entrepreneurs and small businesses (and possibly digital nomads), the increasing demand for co-working, incubator and small satellite office spaces might provide new uses for empty or underused buildings as well as adding to the demand for downtown housing. For example, the co-working firm, TCC Canada, took over most of Shopify’s former headquarter office at 150 Elgin Street in 2021 and recently added more than 62,000 square feet at 66 Slater Street.

Dan Stankovic is an Ottawa consultant and former municipal public servant in economic development and housing.