Road space distribution among multiple modes of transport in urban networks has attracted the interest of several researchers and policy planners. Traditionally, these problems are solved by ignoring operational and dynamic characteristics of multi-modal congestion due to the computational burden involved. Revealing the relation between road space share and global performance of the network can lead to more efficient transport system design. The introduction of dedicated bus lanes in some parts of the network has been proposed as a measure to allow high occupancy vehicles to travel through regions with high traffic load without long delays. In this way, the bus transit system operates more efficiently and is competitive to the private car option in terms of travel time. This effect can stimulate a significant mode shift from car to bus and help alleviate congestion by reducing the number of low occupancy vehicles. In this work we address the problem of optimal allocation of exclusive bus lanes in a multi-modal urban network of fixed total road infrastructure and passenger demand, with the aim of minimizing the total passenger hours travelled (PHT) for all travel modes, within a framework which is consistent with the dynamics of congestion. A queueing theory based traffic flow model with proper treatment of spillbacks and traffic signal settings, known as the Store-and-Forward (SaF) model, is extended to simulate the dynamics of congestion inside the network by keeping track of the queues inside all links over time. The SaF simulation model can be used to evaluate the performance of different allocation policies.