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The Canadian government’s push to bring public servants back to the office is colliding with its plan to reduce the size of its real estate portfolio. Originally, Ottawa aimed to offload half of its office space by 2034, a move expected to save nearly 3.9 billion Canadian dollars ($2.8 billion) over 10 years, according to the CBC.

But new return-to-office requirements and a growing public service workforce have forced the government to scale back its target to about one-third.

Public Services and Procurement Canada, or PSPC, says updated policies requiring employees to spend at least three days a week in the office — and four days for executives — mean more space is needed than initially projected. At the same time, the federal workforce has grown by about 16,000 employees since last year, bringing the total to more than 306,000 full-time staff.

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Reducing the federal office footprint was meant to ease long-term costs. According to Canada’s federal budget, annual savings could have reached CA$900 million once the downsizing was complete. With the smaller reduction, projected savings now stand at roughly CA$2.45 billion over 10 years — significant, but far less than originally anticipated, according to the CBC.

Auditor General Karen Hogan has criticized the slow pace of downsizing. Her office warned earlier this year that holding on to surplus buildings that are not fit for housing will drive up maintenance costs. She has urged the government to act faster so that some of these properties can be repurposed for housing or community use.

To bridge the gap between cost-cutting goals and space demands, PSPC is pursuing several strategies. These include having multiple departments share office space, updating allocation and funding models, and accelerating the disposal of surplus properties, according to the CBC. But success depends heavily on cooperation across government departments, some of which have been reluctant to reduce their footprints.

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The challenge is not unique to the federal level. Ontario Premier Doug Ford recently announced that 60,000 provincial public servants will return to the office full-time by early 2026. The City of Ottawa is also requiring municipal employees to resume five-day office schedules starting next year. These decisions increase demand for office space across the capital and put pressure on federal real estate planning.

The government’s revised strategy comes at a time when Canada’s broader office market is also adjusting to return-to-office mandates. In Toronto, vacancy rates for top-tier Class AAA office buildings have dropped to just 3% as demand rises, according to Storeys. Experts say this trend could trickle down to less prestigious office spaces as options tighten.

Local business groups, such as the Ottawa Board of Trade, argue that a clear federal workforce strategy is essential — not only to manage real estate costs but also to revitalize downtown areas, according to CTV News. They see potential in converting unused federal buildings into housing, cultural spaces, or other amenities that could draw people back to city centres.

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Unions representing federal workers, however, continue to question the government’s approach. The Public Service Alliance of Canada has argued that expanding remote work would save billions without forcing costly real estate adjustments. In a statement to The Canadian Press, Sharon DeSousa, president of PSAC, said the government’s approach risks public services while missing out on potential savings.

With competing demands — from cost savings and employee expectations to downtown revitalization and political pressures — the path forward remains uncertain. PSPC maintains that its 50% reduction target is still “ambitious” but not off the table, according to the CBC.

For now, the balancing act between return-to-office rules and real estate downsizing is reshaping the government’s cost-saving plans and influencing the future of Canada’s office market.

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This article Return-To-Office Rules Create A Costly Dilemma For Canadian Government’s Real Estate Plans originally appeared on Benzinga.com