Ottawa's Commercial Market Is Splitting in Two: Soft Office, Tight Industrial, and Where the Real Deals Are

There's a contradiction sitting in the middle of Ottawa's commercial market right now, and it's worth understanding whether you lease space, own a building, or just watch this city's economy for a living.

The federal government spent the last two years telling everyone it wants to unload roughly half its office space by 2034. Then it turned around and ordered public servants back to their desks four days a week. You can't really do both. Either you shrink the footprint or you fill the desks. Ottawa's office landlords are living inside that whiplash, and it's created the most lopsided commercial market I've seen here in years.

Let me walk through what's actually happening, asset class by asset class, with real numbers.

Office: this is a tenant's market, full stop

Colliers pegged Ottawa's office vacancy at about 13.2% in the second quarter of 2026, and it ticked up on the quarter, driven almost entirely by public-sector space coming back to market. CBRE tracked it even higher earlier in the year, north of 14%. The two firms measure slightly different inventory, so the exact number depends who you ask, but they agree on the two things that matter: vacancy is high, and the federal unwind is the reason.

You can see it building by building. In the first quarter, roughly 114,000 square feet came back at 1550 Carling, the old Revlon building, plus another 112,000 at 59 Camelot Drive. That's a quarter of a million square feet of former government space hitting one market in three months, and there's more in the pipeline.

Here's what that means if you're a tenant. You have leverage you haven't had since before the pandemic. Landlords sitting on big blocks of empty space are competing hard, and they're paying to win deals. Tenant-rep brokers are reporting six to twelve months of free rent on a five-year term in the softest downtown space, plus improvement allowances generous enough to cover most of a build-out. That's the aggressive end of the range, not every deal. But even an average negotiation right now tilts toward the tenant. If your lease is up in the next 18 months, you should already be at the table. This is the window.

Industrial: the exact opposite problem

Now flip it. Ottawa's industrial vacancy was 2.5% in the first quarter, down from 2.7% at the end of 2025. Availability, which counts empty space plus space quietly being marketed, sat at 3.4%. That is tight. Average asking rent was $16.75 a foot, basically flat year over year after a small dip.

If you need a small-bay unit under 20,000 square feet in the east, south, or central-west end, good luck. There's almost nothing, and nobody is building it because the math doesn't work at these rents and construction costs. Warren Wilkinson at Colliers put it plainly: it doesn't make economic sense to build small-bay, so the existing stock gets fought over. Owner-occupiers are paying record prices, north of $350 a foot, for well-located buildings in good shape. Some tenants have given up on the city entirely and are looking at Hawkesbury or out along the 401.

The exceptions are the big boxes. A 230,000-square-foot building like Rosefellow's on Huntmar in Kanata is a different animal, and larger vacancies like that need real tenant demand to fill. But small-bay stays a landlord's market, and it isn't loosening any time soon.

Retail sits in the middle, and location decides everything

Retail doesn't get one clean headline number, because it's really two markets. Necessity and service retail in the suburbs, the grocery-anchored plazas and strip centres out in Barrhaven and Orleans, has held up fine. People still need groceries and haircuts close to home, and those tenants pay their rent.

Downtown retail is the question mark, and it's chained directly to the office story above. Every coffee shop and lunch counter in the core was underwritten on a certain volume of foot traffic. A four-day office mandate helps that. A shrinking federal footprint hurts it. Which force wins, block by block, is going to decide which downtown storefronts survive the next few years.

The federal wildcard nobody can actually price

Back to that contradiction. The official plan, the Government of Canada Office Portfolio Reduction Plan, targets cutting three million square metres, about half the federal office footprint, by 2034. But the government now admits it will probably only manage about a third of that over ten years, because you cannot shed space and simultaneously order people back into it. Public Services and Procurement Canada has even signalled it may have to acquire space to house everyone under the four-day rule.

Think about what that does to pricing. Every large block of surplus government space that comes up for sale or lease pushes office vacancy higher and hands tenants more leverage. But if the four-day mandate forces the feds to lease space back, that same absorption could quietly reverse over the back half of this year. Nobody can tell you with real confidence which way the net moves. That uncertainty is itself a reason office values are soft, because buyers hate what they can't underwrite.

What I'd actually do

If you're an office tenant with a renewal coming, push hard and lock a longer term now while landlords are hungry. The inducements on the table today probably won't be there in three years if federal absorption swings back the other way.

If you need industrial, especially small-bay, renew early and don't get cute waiting for a better deal. It isn't coming.

If you're an investor, be honest about which game you're playing. Office today is a value and repositioning play, not an income play, and only if you can stomach the federal uncertainty or you see a conversion angle. Small-bay industrial is the boring, reliable income. And watch older office and industrial sites near transit, because the real money over the next decade may sit in converting them to residential. That's a whole other conversation, and one I'm having with more clients every month.

Whether you're negotiating an office renewal, chasing down a scarce industrial unit, or running the numbers on a commercial building as an investment, this is the kind of market math I like to dig into with clients, and where it helps I'll bring in a commercial specialist to close the gap. Reach me directly at 613-262-6545 or fil@613realtor.ca and let's talk through your situation.