The Canadian government has made slow progress in downsizing its real estate portfolio and is carrying hundreds of millions of dollars in undue annual costs for sparsely occupied and obsolete office space. A newly released report from the Auditor General of Canada highlights the mere 2 per cent reduction in the federal government’s office inventory during the period from 2019 to 2024, falling far short of a target to shed 50 per cent or nearly 32 million square feet.
However, the Auditor General’s investigative team maintains that momentum has picked up since Public Services and Procurement Canada (PSPC), the government’s de facto property manager, was allotted dedicated funding for the task in the 2024 federal budget, resulting in an updated implementation plan. Recommendations accompanying the auditors’ findings now suggest that better data, more stringent tenant accountability and a coordinating focus within the Treasury Board of Canada Secretariat could help push the process along.
PSPC currently estimates the government could realize nearly $4 billion in savings over the next 10 years if it could dispose of excess office space, after which this smaller footprint would deliver ongoing operational savings of about $900 million per year. That’s been the notional objective since soon after a 2017 study decreed that 50 per cent of the government’s office inventory was underused.
Beginning in 2019, one element of PSPC’s space reduction campaign aimed for the annual conversion of 4 per cent of office space to an open plan format — to replace individual offices and assigned desks with a more efficient configuration with a lower space-per-employee ratio. To date, the transformation has unfolded at a slower pace of about 2.4 per cent of office space annually between 2021 and 2024, which the auditors attribute to a combination of tenant resistance, impediments due to building conditions and lease considerations, and inadequate funding in sync with inflationary costs.
That’s in keeping with a general hypothesis that PSPC had sound intentions and a credible plan at an earlier stage, but faced constraints that prevented it from making much headway until last year. In reaching that conclusion, auditors studied PSPC and Treasury Board documents for the period from April 1, 2018 to Oct. 31, 2024 (also extending to PSPC’s implementation plan, which was formally finalized in Feb. 2025) to track the evolution of the government’s downsizing ambitions. Under the direction of principal auditor, Markirit Armutlu, they also conducted a survey of the 100+ federal departments that are tenants within roughly 63.5 million square feet (5.9 million square metres) of office space across Canada, and interviewed various third party real estate and property management specialists.
“We found that, mainly because of a lack of funding since 2019 to implement the original reduction plans, Public Services and Procurement Canada was able to achieve only a slight reduction in office space,” the report states. “Budget 2024 announced that the government would provide $1.1 billion over 10 years, starting in 2024–25, for Public Services and Procurement Canada to reduce its office portfolio by 50 per cent to 2.95 million rentable square metres. The funding is intended to help accelerate the termination of leases and disposal of vacant or underused federal properties and reduce maintenance and operating costs.”
Complications and obstacles
The updated space reduction strategy begins with the identification of buildings to be removed from or retained in the federal portfolio. PSPC will take the lead in deciding where various federal departments should be located, but with a promise to work with tenant representatives to determine their (presumably reduced) space requirements. That’s expected to involve renovations, particularly given the federal government’s green operations mandate, and the possible need for temporary swing space to accommodate government workers during the process.
Ultimately, PSPC will dispose of vacated buildings, but auditors warn that a circa-2024 government directive to prioritize the disposal of office buildings that have potential to be converted to housing complicates that process and could eat into projected cost savings over the longer term. Separate of the policy intentions to boost housing supply, it could mean the government is forced to hold some mothballed properties for an extended time period if they aren’t suitable for conversion. That would also necessitate longer-term costs for basic building services, maintenance and payments in lieu of property tax to host municipalities.
Since 2024, PSPC has established a new division dedicated to building disposal and is currently testing what’s promised as a streamlined sell-off process on 10 buildings in the Ottawa-Gatineau region. However, there are no results yet to prove that supposition.
“Information provided by the department on pre-2022 disposals showed that once a property had been declared surplus, disposing of it took six to eight years. Moving forward, the department anticipates it will be able to dispose of real properties in three years,” the auditors note. “The longer the disposal process, the more it costs the government to maintain the buildings slated for disposal.”
Negotiations with tenants have also added to PSPC’s timelines. That began in earnest in June 2024 when the 37 federal departments with the largest footprints, accounting for about 90 per cent of federal office space, were asked to commit to space reduction agreements. Fifteen of those departments, representing about 41 per cent of the affected workforce, had not yet signed an agreement nearly a year later as the auditors finalized and prepared to release their report.
“Tenants have expressed a variety of reasons to explain why office space reduction agreements have not been signed, including funding and growth concerns, the need for specific accommodations to deliver on their mandate and an unwillingness or disagreement to move into the new locations that Public Services and Procurement Canada proposed,” the auditors report.
Drawing other inferences, they advise that, in most cases, accommodation costs are not linked to departmental budgets, but, instead, come out of general government revenues.
“Of the 15 tenants cited who did not agree to the reduction of the space they occupy, 13 (or 87 per cent) had no financial incentives to reduce the space. In total, 93 federal tenants (89 per cent) do not reimburse the department (PSPC) for the space they occupy,” the auditors observe. “Of the 12 federal tenants with financial incentive to reduce the space they occupy, nine (or 75 per cent) had agreed to the requested reduction of space or were finalizing their reduction plans.”
Supporting the process
The auditors call for standardized tracking of office occupancy to better inform PSPC’s decision-making, and for the public release of more information about the government’s real estate portfolio, such as:
- occupancy rates;
- market values of buildings;
- transactions and sale values;
- housing units gained through conversion of disposed buildings; and
- building-level greenhouse gas (GHG) emissions.
The current divulgence of information, including percentage of space modernized, accessibility compliance and GHG emissions reduction, is compared to the wider scope of information that other countries, such as Australia, release about their government office space.
“Parliament and the public need additional relevant information to be better informed on the progress being made and on how office space is being used. Furthermore, if made publicly available, information such as cost per square metre, cost per employee and square metre per employee by federal tenant may incentivize federal tenants to optimize their use of office space,” the auditors reason.
Finally, the auditors commend and lament the subsequent dismantling of the Centre of Expertise for Real Property, which was temporarily established within the Treasury Board Secretariat earlier in this decade. That body arose from a $5-million allocation in the 2021 budget and a three-year mandate to oversee the implementation of recommendations from a comprehensive review of all of the government’s fixed assets (going beyond office space to include national parks, national defence holdings, correctional facilities, RCMP detachments, interprovincial bridges, ports of entry, etc.) and to help government departments respond to COVID-19 related facilities management issues.
The auditors conclude that the Centre “played an important role in providing leadership and oversight” and that momentum within government has slowed since it was dissolved in March 2024. They urge its reactivation or the establishment of a similar body that could coordinate the effort centrally and leverage Treasury Board’s government-wide clout.
For its part, the Canadian government has accepted and agreed with the Auditor General’s recommendations.
“In particular, I welcome the recommendation that PSPC improve its public reporting on progress toward achieving the 50 per cent reduction of its office portfolio by 2034. The department recently shared an update on its website and will provide updates on results annually going forward,” Joël Lightbound, the Minister of Government Transformation, Public Works and Procurement, said in a June 10 statement. “My department also remains committed to working with federal departments and agencies to improve data collection so that we can better achieve our office space portfolio targets.”
