New report paints grim picture of Ottawa's economic outlook

30,500 jobs were lost and the unemployment rate rose to 6.3% in Ottawa between Feb 2025–Feb 2026; Ottawa–Gatineau real GDP is projected to grow 1.4% this year but at a slower pace with gradual improvement expected in 2027. Public sector cuts (the public sector accounts for ~25% of employment) are a primary driver, producing spillovers into retail, real estate, accommodation & food services and culture, and reducing local consumer spending. The city is prioritizing private‑sector job creation—tourism, technology, defence/security, construction and manufacturing—but small‑business stress and an 'entrepreneurial drought' pose downside risks to near‑term recovery.

Analysis

A concentrated public-sector employment base magnifies transmission to local consumption, commercial real estate and small-business viability; when a dominant employer cohort retrenches, discretionary retail, service payrolls and office space demand tend to undershoot broader macro cycles by 6–12 months. Expect office vacancy and sublet supply to act as a persistent drag — incremental vacancy can force landlords to cut face rents by mid-single to low-double digits over 12–24 months, creating mark-to-market and refinancing stress for leveraged CRE owners.

Second-order winners are businesses and investors exposed to secular public-to-private procurement shifts and tourism-driven demand spikes: private defense/security vendors, specialized training & simulation providers, and hospitality operators tied to discrete event calendars can capture outsized share if municipal and federal contracting pivots. Conversely, regional lenders and SME-focused acquirers will see credit mixes deteriorate first, then revenue, producing an asymmetric window for distressed M&A and franchise roll-ups when asset prices reset.

Near-term catalysts that could reverse the trend are concentrated and observable: an announced federal hiring pause reversal or a multi-year procurement tranche could re-absorb skilled labour within 3–9 months; a strong execution of summer event calendars can produce a pronounced tourism revenue blip in 1–6 months but is unlikely to offset structural CRE damage. Tail risks include a deeper-than-expected municipal revenue shortfall forcing tax hikes or capex deferrals, which would extend the weakness into a multi-year municipal budget cycle and widen credit spreads for local issuers.

Key Decisions for Investors

• Short Dream Office REIT (D.UN on TSX) — trade duration 12–18 months. Tactical: buy 12-month puts or short stock sized to 1–2% portfolio risk; target 25–35% downside driven by rent roll compression and refinancing stress; hard stop at 20% adverse move. Risk/Reward ~1:3 if macro CRE weakness materializes.
• Pair trade: Long RioCan REIT (REI.UN) / Short Dream Office (D.UN) — 9–12 month horizon. Retail-anchored retail landlords should outperform office in a local-consumption shock; target relative outperformance of 20–30% (gross). Use equal notional positions and tighten stops if retail same-store sales roll over; expected payoff asymmetric to the long-retail leg.
• Long CAE Inc. (CAE.TO) — 12–24 months. Rationale: exposure to training/simulation and defense procurement that can benefit from private-sector contracting and re-shoring; accumulate equity or buy 12–24 month calls sized to 1–1.5% portfolio. Target +20–30% on contract upticks; hedge tail risk with 3–5% budget in out-of-the-money puts.
• Event/seasonal play: Buy Air Canada (AC.TO) calls into summer window — 3–9 months. Use short-dated calls to capture tourism upside from calendar events; aim for ~2:1 reward-to-risk if summer demand beats, with strict stop at 15–18% premium decay. Keep position size small given execution risk and rate-sensitive fuel/FX exposure.