Asked to discuss the current state of the commercial real estate industry in Winnipeg, the knee-jerk reaction might be to say it is in the doldrums.
How could it be otherwise after more than two years of periodic lockdowns and social distancing, high interest rates, rising inflation and a potential recession.
But that would not be the whole story.
Yes, at Wednesday’s annual state of the industry conference held by BOMA (Building Owners and Managers Association), industry professionals heard that office vacancies are high but that was expected
Paul Kornelson, vice-president and managing director at CBRE’s Winnipeg offices, said overall office vacancy is at an all-time high of about 16 percent — although vacancy rates in suburban offices are now under 10 percent.
But that is the most obvious bad news story. The rest of the commercial real estate market — retail, industrial and multi-family residential — are all doing just fine despite some significant fundamental challenges like high interest rates rising construction costs.
Presenters spoke about new development on the way including the six-screen, 35,000-square-foot Cineplex Junxion at Kildonan Place — the first of its kind in Canada — that is expected to open soon, a 70,000-square-foot Home Depot e- commerce fulfillment center — the type of development that Winnipeg is often overlooked for and discussions about converting the Canada Revenue Agency building on Broadway into a hotel.
In the industrial market, Trevor Clay, principal at Capital Commercial Real Estate said vacancy rates are down to 1.9 percent, a level not seen in Winnipeg for decades. And the fact that all three levels of government have now committed $60 million to provide servicing to CentrePort land south of the airport, major new residential and industrial development can be expected to be coming soon.
Perhaps most surprising was that retail vacancy rates are under five percent. Michael Stronger, senior vice-president retail and investment for Shindico, said that some of the stability is partly due to the fact that there has not been much large-scale retail development in many years.
The once empty buildings caused by the Target and Sears closures have virtually all now been back-filled and there has not been any new big box development for about a decade.
“What we have now is lots of competition for small spaces that are still on the market,” Stronger said. “Anything under 3,000 square feet in a strip mall with a grocery store is getting multiple offers.”
And while virtual tours allowed investors in industrial buildings to remain busy throughout the pandemic, Stronger said retail investors and tenants need to be on the ground.
Consequently, he said, there has been a rush of interest lately with officials from companies including Dollarama and Starbucks looking for new locations.
When it comes to multi-family residential projects Franca Cerqueti, vice-president and managing director at CMLS Financial, said although many wonder if Winnipeg is getting over-built with so many projects after going so many years with so few, she said the answer is probably not.
Apartment building vacancy rates are very low, she said, around 2.5-to-three percent.
All the presenters were concerned about high construction costs in Winnipeg. Kornelson said those costs are “handcuffing” some office building owners and tenants in their efforts to repurpose office space.
But that said, Clay said that there are opportunities for owners of existing industrial buildings to create value because the cost of building new space is so high. (Even so, the market absorbed 1.5 million square feet of new industrial space this year and there is another one million square feet expected to come on the market this year.)
Because government office leases make up an over-sized share of the downtown Winnipeg market, there was a consensus among the presenters that government mandates to get their employees to come back to the office will make a big difference to the office markets — and to downtown in general
With a new mayor and council in city hall and a provincial election in 2023, asked what would be a priority when lobbying government, Clay said, “The federal and provincial governments make up a huge component of office rental in Winnipeg. Many of their leases are up for renewal in 2024-25-26 and if those leases come back to the landlords it won’t be good for any of us.”
Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.
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