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Bagnall: After the virus: what to do with those empty offices

The last time the capital region witnessed an exodus from its office towers this sudden, the federal government filled the empty spaces. Life went on as before.

Whatever the state of the economy that emerges from the pandemic, it won’t be the same this time around.

The catalyst in 2001 was a telecom crash that brought Nortel Networks and fibre-optics star JDSU to their knees and pushed dozens of high-tech startups into oblivion. This high-tech cataclysm released millions of square feet of nearly pristine office space into the market.

Two decades later Nortel’s R&D citadel is headquarters for the Department of National Defence and JDSU’s former campus is home to the RCMP. Dozens of other high-tech office complexes are occupied by myriad other federal government departments.

All of this was made possible by an extraordinary trend. When the tech industry boomed in the late 1990s, government employment locally shrank to an unusually lean 100,000. In the two decades since, net federal hiring has added 50,000.

The result is that the federal government utterly dominates the region’s economy as both employer and landlord, just as it is about to determine how and when it will reopen its offices.

Its decisions, expected in coming weeks, will have a profound bearing on everything from commuting patterns to the way work is done in the region. Also in the balance: the fate of hundreds of small businesses that dot the region within walking distance of federal buildings.

The big question is just how much space will government actually need compared to that now distant pre-pandemic era? Much hinges on whether the unexpected work-at-home experiment inspired by COVID-19 will become a permanent feature of government employment.

Consider first the bigger picture. Across the region, the federal government (through its real estate arm Public Services and Procurement Canada) owns or leases nearly 2,200 buildings that collectively account for some 66 million square feet of space. That’s more than 35 times the size of the new DND headquarters at 60 Moodie Drive.

Much of the real estate is taken up by warehouses, labs and electronic infrastructure. The federal government also sublets a significant chunk of its holdings to third parties.

To grasp the government’s more narrow influence on the office market directly, recall that last year it employed about 120,000 in the capital region, excluding military and RCMP officers. Perhaps 100,000 or so of these are office workers, representing 15 per cent of total employment in the region. Assuming each employee occupies the government-wide target of 150 square feet of space, that translates to about 15 million square feet.

How does that compare with the total market? CBRE and Colliers — real estate services firms — calculate Ottawa’s total office inventory at 40 million square feet. For Gatineau, add another 10 million square feet or so. This suggests federal government employees occupy 30 per cent of the region’s total office space.

That was before coronavirus. What’s needed now? Top officials in PSPC and Treasury Board (the government’s employer) are mulling a series of scenarios.

A key unknown is whether a work-from-home regime is compatible with a highly-unionized workforce that operates according to thousands of rules governing overtime, shift work premiums and various forms of paid leave.

There’s no reason to think these issues can’t be sorted out, given the government’s five-month immersion into this way of getting things done. Certainly the Canada Revenue Agency acquitted itself well by re-writing policy on-the-fly and getting millions of emergency benefit cheques out the door quickly and accurately. Indeed, the scale of the response by certain departments should be an eye-opener for government managers, showing it really is possible to accomplish things without line-of-sight direction from inside an office.

Indeed, CRA workers got their job done despite taking advantage now and then of a section in their collective agreement (code 699) that permits paid leave in unusual circumstances, such as those created by the COVID-19 illness. Much has been made of the Parliamentary Budget Officer’s recent estimate that the cost of such leave government-wide topped $700 million by the end of June.

But the use of this admittedly rare benefit fell sharply from March to June. Even if government employees continue to make use of it for another nine months with the same frequency as they did in June, this would represent just 2.5 per cent of the government’s total annual payroll.

Even that is not a fair comparison. Had the government laid off its workers, they would have been eligible for emergency response benefits or employment insurance, just as private sectors employees are. The net cost of code 699 will likely prove marginal.

While it’s clear that many government employees like working from home, some do not. Some need to show up in person; others have options. Sorting out just what the future workplace should look like is the job of individual departments for the moment — though they are expecting guidance from Treasury Board and other central agencies. Nevertheless, a one-size-fits-all approach likely won’t work because individual departments differ greatly in their need for dealing with the public.

Take a look at the government’s top 12 employers locally.  CRA, with 11,200 workers across the capital region, is the largest. The nature of much of its work is analysis, which can be done from anywhere. Further, more than 90 per cent of taxpayers file online, making work from the office even less essential. More than 80 per cent of CRA’s services generally are available remotely.

Statcan (with 5,000 employees locally) Health Canada (7,500 workers) and DND’s civilians (9,500 strong in the capital region) offer similar flexibility to work from home.

The same is less true of Employment and Social Development Canada (7,800 employees in Ottawa-Gatineau), which operates more than 500 Service Canada outlets for dispensing services such employment insurance, pension and passport issuance. During the pandemic, Canadians were directed to online services because ESDC employees did not want to risk becoming infected. Many outlets remain closed or offer in-person meetings only by appointment. ESDC managers are evaluating the experience to determine whether more can be done online permanently.

Global Affairs, with 5,300 employees locally, is the point department for Canada’s relations with the rest of the world. It’s difficult to see how personal relations can be conducted permanently via Zoom or Facetime — which is certainly an argument top mandarins will make to continue a $750 million refurbishment of the Lester B. Pearson building, a job not expected to be completed until 2026 at the earliest.

The department in charge of the government’s massive real estate holdings has also begun a mid-life overhaul of the Place du Portage complex in downtown Gatineau, which normally houses more than 10,000 government workers, many of them specialists in procurement.

Does it make sense to spend hundreds of millions of dollars on office space that may not be required?

“If they do have more people work from home,” said CBRE senior vice-president Shawn Hamilton, “I suspect government will still need a similar amount of square footage to allow for spacing between employees.”

Hamilton adds that new technologies that provide better air circulation and eliminate the need for touching elevator panels will also help reassure workers who want to return to the office.

Nevertheless, the upshot of such arrangements would be that Public Services and Procurement Canada would wind up investing a fortune to accommodate fewer workers. It would also be left with the extra costs of outfitting government employees who choose to work from home.

And what if government emulates the private sector? Conference Board of Canada, an Ottawa research group with 180 employees, recently revealed it would sell its headquarters building and direct 180 employees to work from home “until a vaccine or treatment is available for COVID-19.”  At the end of June, the Conference Board discovered in one of its surveys that two-thirds of organizations across the country had more than 60 per cent of their employees working remotely.

Leading the office revolt locally is emerging e-commerce giant Shopify, which last week set aside more than US$30 million to reimburse its landlords for its decision to vacate most of its offices worldwide. Shopify employs 1,000 in Ottawa. Most leases are typically multi-year arrangements, which has been a saving grace for many office landlords during the pandemic — or at least for those with solvent tenants such as Shopify.

The federal government, though, is both landlord and tenant in many cases.

Complicating the ongoing deliberations about how much office space is appropriate, is politics. If past economic crises are anything to go by, there will be a reckoning once the government’s deficit spending binge ends. Governments squeezed their workforce in the mid-1990s and again following the 2009 financial crisis. The temptation to save money by pulling back on those expensive building projects will also be enormous.

Fortunately, and notwithstanding the botched Phoenix Pay system for employees, the federal government has been building its information technology skills to the point where key departments can serve Canadians predominately online — with a workforce they can deploy anywhere.

Among the many other consequences of the coronavirus, there’s this: it just may push this government into an entirely different way of managing its workforce, with knock-on effects that can only be imagined.

Copyright Postmedia Network Inc., 2020

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