R4 Re­al­ity: Is Ottawa re­ces­sion-proof?

Ottawa Business Journal - BOMA Magazine - - Cover Story: The Four Rs -

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.

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