R4 Reality: Is Ottawa recession-proof?
No one can dispute the data, which clearly shows that Canada went into a sharp, deep recession starting in October of 2008. Despite a year of national and global economic angst, it is significant to note that the National Capital Region did not actually go into a recessionary position during this latest economic downtown. As Professor Ian Lee, the Director of the MBA Program at Carleton University’ Sprott School of Business explains, although Ottawa’s growth subsided, we were fortunate to never see negative numbers like much of the rest of the country. He confirms that the massive presence of the federal government serves to moderate the ups and downs of the economy throughout our region. While we don’t have the spectacular highs of other markets such as Calgary, Toronto or Vancouver, the flip side is that we don’t experience their lows either.
Although there are various metrics producing differing numbers, Mr. Lee says that the federal government alone accounts for about 25% of the jobs in our region. However, if you look at the broader public sector, including universities, hospitals, provincial and municipal governments, the National Capital Commission and school boards, that number is closer to 40%. Add to that the many businesses that service or sell to the government and you can quickly see why our economy is very unique.
Prior to becoming a professor, Mr. Lee served as a loan and mortgage manager at the Bank of Montreal in Ottawa and in that capacity approved mortgage funding to home owners and to some real estate developers. His many years of experience in the Ottawa economy have convinced him that we will always be quite insulated from the larger economic ups and downs because the Government of Canada simply does not shut down in a recession. The stimulus effect on our local economy of all federal expenditures means that it’s highly unlikely we’ll ever see Ottawa in a recession. Although we occasionally may hear of the possibility of governmental decentralization impacting our economy, he believes this is not really a huge strategic threat because legislation mandates that the head office of every government department must be located in the National Capital Region. Therefore, our economy will maintain its traditional stability and it will be much more difficult for businesses to fail because of the positive influence of the federal government. He suggests that businesses which do fail in Ottawa often do so as a result of being poorly managed, not because of the local economy.
Another positive aspect of living and doing business in Ottawa is that prices are very reasonable here compared to other major metropolitan centres. Because ours is a public service consumer economy, suggests Mr. Lee, we enjoy more rational prices for housing, groceries, restaurants and entertainment, particularly when contrasted to cities that are flush with expense account consumers.
Despite all this optimism, Mr. Lee cautions that businesses need to stay abreast of developments in the public service to adapt to changing expectations and ways of doing business. Companies need to have current knowledge of what’s happening in the public sector and with Treasury Board so they can be aware of potential shifts. For the real estate industry, for example, it’s important to be aware of the possibility of a department moving, as is the case with the RCMP’s impending relocation. He warns, however, that one must always remember that the decision making process in the federal government is significantly slower than in the private-sector, partially due to the checks and balances inherent in the system and also because of bilingualism requirements. As Mr. Lee puts it, the wheels are slow to turn but once they get moving, they will not be stopped.
Mr. Lee also believes that we will see the federal government moving to occupy more space in Kanata in the years ahead. He feels the government is not only interested in outsourcing, but also recognizes that leasing does not tie up a lot of government capital which can then be used for other more high-profile purposes. As a result, there could easily be some decentralization at the city level for the federal government, particularly given that there is a lot of prime real estate available in the west end that could easily be made suitable to government needs. Should this happen, over time there will be another migration
as more government workers would undoubtedly choose to relocate to be more proximate to their workplaces, something that is more feasible in Kanata than downtown. Unlike the high tech sector, where there has been some uncertainty about job security, government positions tend to be more stable and given the tendency for government to sign long term leases, once a department is relocated, it is not likely to move again for a long time.
The notion of living and working in close proximity has long been recognized as contributing to a better quality of life, adds Mr. Lee. Although Ottawa has historically seen the bulk of its workforce employed downtown, with the majority of people living on the outer edges of the city, he believes the fact that all levels of government are committed to improving Ottawa’s rapid transit system will change this pattern. As he explains, the evolution of transit may make it easier to decentralize some government departments, particularly when coupled with the advancements in infrastructure that have taken place in the west end over the past decade.
He believes that because Parliament Hill will always stay downtown, senior decision makers such as deputy ministers and director generals will always work in the core to be close to departmental ministers, the Privy Council Office and the Prime Minister’s Office. Similarly, key central entities such as Justice, Finance and Treasury Board will likely also stay downtown, but a large proportion of government workers could easily be decentralized to other areas of the city with minimal impact.
Mr. Lee isn’t worried that this exodus would leave a glut of vacant space in downtown Ottawa. He points to Washington, D.C., as an example of a very similar market and notes that here, as in the U.S. capital, the ranks of corporate lawyers and lobbyists are steadily multiplying each year. These are two groups which, like government research firms, will always want to be located downtown because they want propinquity – to be physically close to the corridors of power to increase their own influence.
If the federal government does not choose to spread itself out in Ottawa, Mr. Lee suggest that we might be faced with a new kind of urban sprawl, with the building of more high-rise office towers at the edges of downtown, which will in turn put increased pressure on near-core urban areas like the Glebe or Westboro. He believes that making better use of the city’s existing surplus commercial space and land available for development would prevent this kind of encroachment by reducing the demand for ‘downtown only’ by government departments that perhaps really don’t need to remain in the core.
In his capacity as General Manager of Market Research Corporation, Barry Nabatian keeps his finger on the pulse of many aspects of Ottawa’s economy. He agrees that the buzzword for Ottawa is stability. The National Capital Region’s economy is primarily knowledge and service based, with very few traditional industrial and manufacturing jobs. Because of this, he explains, the government, tourism, high tech, education and health care are Ottawa’s growth sectors, as befits a city with one of the highest percentage of residents with post-secondary and post-graduate education. Mr Nabatian says this is typical of a capital city, as is the fact that 6.5 out of 10 jobs in our region are office-based and these tend to be higher paying, knowledge based and more stable.
Despite frequent rhetoric about political downsizing and streamlining, Mr. Nabatian notes that the federal government has, for the most part, been our region’s biggest employer for decades. Currently there are more federal jobs than ever, with 162,000 workers and steady growth over the past three years with the Conservatives in power. Other reliable employers for Ottawa include universities, colleges and business schools. He explains that while education seems to do well whether the economy is good or bad, this sector is not a big consumer of office space. Health care is another key sector though it fluctuates and has not seen significant growth in the past few years. Tourism has been stable for Ottawa as well; while we haven’t seen tremendous growth here either, we have not lost jobs in this field as has happened in other cities.
There are many positive economic indicators for Ottawa, including record numbers of resales in housing during June and July of 2009. 7,200 new jobs were added in our region in June and another 12,000 in July; as Mr. Nabatian explains, this is very strong, considering that seasonal workers
are included in this number. Simply put, Ottawa alone is experiencing more growth than some provinces. Although we typically have between 30,000 and 40,000 people unemployed, he feels this is not bad at all for a region of 1.3 million people.
While the region did lose some jobs in the first few months of 2009, we have gained them all back and overall are seeing normal fluctuations rather than recessionary ones. Incomes are generally stable or increasing and there is strong spending on both a commercial and personal basis. Busy restaurants, long cash register lineups and full parking lots at area shopping centres are good signs of consumer confidence here in Ottawa. In addition, the number of new hotels and retirement homes currently under construction or recently completed shows that the overall picture is strong for our region. With a downtown core that is considered by many as one of the tightest markets in Canada due to its negligible vacancy rates, the future looks promising for the commercial real estate sector as well. Mr. Nabatian says that our region typically requires 700,000 square feet of new office space each year based on a formula of between 250 – 300 square feet per person for office workers.
He cautions, however, that one potential trouble spot for our economy is the difficulty staffing positions in the engineering, construction and trades sectors. Shortages in these sectors caused by not only the thriving residential and institutional construction markets, but also the ongoing federal stimulus for the construction sector and the fact that in Ottawa, many highlyeducated parents encourage their children to follow them into knowledge-based jobs. While not subject to the boom phenomenon experienced by other markets, Mr. Nabatian expresses confidence that Ottawa will quietly remain one of the top three markets in Canada or, as he describes it, rarely an excellent market but even more rarely a poor one.