Office-to-residential conversions: can they fix downtown Ottawa?

The only office market in Canada still going the wrong way

CBRE's Q1 2026 national office figures contained one uncomfortable line for Ottawa: we are the only major market in the country where vacancy is still rising. Total vacancy climbed a full percentage point in the first quarter, and the cause is not remote work. It's large blocks of federal space coming back to the market.

That runway is long. The federal government has said it wants to shrink its office footprint by roughly half, and early disposal lists already include marquee downtown addresses like the two L'Esplanade Laurier towers. Meanwhile the rest of the country is moving the other direction. National downtown vacancy fell 60 basis points in Q1, and class-A vacancy is at its lowest level since 2022. Ottawa's office problem in 2026 is not a return-to-office story. It's the story of a downtown losing its anchor tenant, slowly and permanently.

Which is why every conversation about downtown ends in the same sentence: turn the empty offices into housing. I think conversions are real, and I think they matter. I also think they're a smaller, slower fix than most people assume. Here's the math.

What Ottawa has actually converted so far

Avison Young pegs roughly one million square feet of older class-B and class-C space in downtown Ottawa as complete, under construction, or planned for conversion. That sounds enormous until you notice it's about 10 percent of that inventory class, accumulated over several years of effort.

The projects take two forms. Some are teardowns: Groupe Mach bought 77 Metcalfe St., a 12-storey class-B tower that has sat empty since Nav Canada moved out at the end of 2022, for $19.1 million, pulled it from the leasing market, and plans to replace it with a mixed-use highrise containing 234 rental units. Others are true conversions, where the shell stays and the interior is gutted and rebuilt as apartments. District Realty has one planned at 200 Elgin St., and in Gloucester the former Telesat headquarters is being repurposed as well.

Note what the city is doing and not doing. Ottawa streamlined approvals and made conversions as-of-right in the zoning, and last October council waived parkland dedication requirements on conversion projects for 18 months. What it has not done is write cheques. Calgary pays developers $75 per square foot to convert, which is a major reason nearly a dozen class-B towers there have already flipped to residential. Ottawa offers process, not cash. That gap shows up in the pace.

Why most towers will never convert

The buildings that convert well share a profile, and it's specific. The average viable candidate in Canada was built around 1966 and has a floor plate near 12,000 square feet. Small, old, rectangular, lots of perimeter. Every residential unit needs real window access, so a compact plate with a perimeter-heavy layout works, and a deep modern glass tower does not. Carve up a 25,000-square-foot floor plate and you get a dark core that the building code will not let you rent as bedrooms.

Then there's everything behind the walls. Office mechanical, electrical, and plumbing systems are designed for one washroom cluster per floor, not forty kitchens and forty bathrooms. All of it gets replaced. By the time you're done, per-unit costs on a conversion can rival or exceed a ground-up build, without the design freedom. Developers who have run the numbers on most of Ottawa's inventory walk away, and they're right to.

This is why I tell clients the conversion wave is a filter, not a flood. The narrow-plate 1960s and 70s mid-rises on and around Slater, Albert, and Metcalfe are candidates. The deep-plate commodity towers are going to sit, get repriced, or eventually meet the wrecking ball.

The record quarter that skipped Ottawa

Here's the national context that should worry us a little. Q1 2026 was the biggest quarter for office conversions in Canadian history, with nearly 1.5 million square feet pulled out of inventory across seven projects. Calgary and Halifax each had two. Ottawa had none.

Since 2021, conversions and demolitions have removed about 2.5 percent of Canada's total office inventory, and with the national construction pipeline at a 22-year low, removals could outpace new supply this year. In most cities that's a healthy rebalancing: supply shrinks while demand recovers. Ottawa is running the opposite experiment. Our effective supply grows as the federal government hands space back, and our removal rate, for now, is modest.

What this means if you own, lease, or invest here

If you own class-B or class-C downtown, your building's future value may have less to do with the rent roll than with the floor plate. A narrow-plate building near transit has a residential exit. A deep-plate commodity tower has a repricing problem. Know which one you hold before the market tells you.

If you're a tenant, this remains one of the best leverage environments I've seen. Rising vacancy plus a landlord base fighting obsolescence means inducement packages keep getting richer. I broke down how that negotiation actually works in my piece on tenant inducements, and everything in it still applies.

If you're an investor eyeing a conversion play, understand that you're underwriting a development project, not an income property. The buildings that pencil are scarce, the construction risk is real, and the cities that made conversions work at scale did it with subsidies Ottawa has chosen not to offer. For most investors, the saner way to participate in downtown's slow residential rebuild is on the housing side. My segment-by-segment comparison of where Ottawa commercial capital is moving is the companion read.

Downtown Ottawa will get through this, but the bridge from empty offices to lived-in streets is being built one narrow floor plate at a time. Anyone selling you a faster version is selling something.

Own a downtown building, staring down a lease renewal, or wondering what the conversion next door does to your condo's value? That's a 15-minute phone call, not a report. Reach me at 613-262-6545 or fil@613realtor.ca.