Vacancy rates in city stay low, defy recession

Winnipeg's commercial real estate market is thumbing its nose at the recession, according to the author of a newly released market report.

In his mid-year report on the local market, called The Johnson Report, Winnipeg commercial leasing agent Wayne Johnson says vacancy rates have held steady through the first half of this year in both the industrial and retail sectors, and have increased only modestly in the downtown office sector.

"If you look at these numbers, you would say there is no recession," Johnson said in an interview. "The office (sector) is good, the industrial is very good, and the retail is fabulous."

Johnson pegged the overall downtown office vacancy rate for Class A, B, and C buildings combined at 4.6 per cent in June. That's 0.9 per cent higher than at the end of last year, when it was 3.7 per cent.

He pegged the overall industrial vacancy rate at 2.6 per cent (it was 2.5 per cent in December), and the retail rate, which was 3.3 per cent in December, at 3.4 per cent.

Johnson, a commercial and leasing agent with Royal LePage Dynamic Real Estate, said he remembers Winnipeg's downtown office vacancy rate was more than 10 per cent during the last major recession of the early 1990s.

But Manitoba's diversified economy is weathering the global economic storm much better this time around, he said, and the commercial real estate vacancy rates are further proof of that.

Johnson also noted that about half of the 0.9 per cent increase in the office vacancy rate was due to him adding nine more buildings to the inventory of Class C space he tracks. Some of them had vacant space, which bumped up the overall vacancy number.

CB Richard Ellis Ltd. also issued some second-quarter office vacancy rate numbers late last month. They showed Winnipeg's overall downtown office vacancy rate jumping to 7.9 per cent from 6.1 per cent at the start of the year.

But Paul Kuzina, an office and leasing specialist with the firm's Winnipeg office, CB Richard Ellis Chartier & Associates, said that's because CB Richard Ellis includes sublease space in its office vacancy numbers, while some others, including Johnson, do not.

Kuzina agreed that if you exclude the sublease space, there was only a modest change in Winnipeg's overall vacancy rate in the first half of this year.

"It's been very slow (for leasing activity)," he said. "I think a lot of companies have just been sitting on the fence... trying to ride out these economic times."

Kuzina said even when sublease space is included in the vacancy rate numbers, Winnipeg still looks good compared to cities like Calgary and Toronto.

The CB Richard Ellis report pegged Toronto's overall office vacancy rate (including sublease space) at 8.4 per cent in the second quarter this year. And Calgary's was 10.2 per cent -- more than double what it was a year ago.

The firm also predicted Calgary's rate will soar to 20 per cent by the end of the year as oil-industry-related firms continue to downsize and some newly built office buildings come on the market.

Kuzina said corporate downsizing by a number of U.S.-based firms with operations here is also why 76,000 square feet of new sublease office space came flooding onto the Winnipeg market in the second quarter this year. That included 46,000 square feet of Class A space and about 30,000 square feet of Class B space.

He said there are 94,304 square feet of sublease Class A space available in downtown Winnipeg and 43,954 square feet of Class B space. That's an unusually large amount of sublease space available at one time, he said.

Johnson said Winnipeg's overall retail vacancy rate has been on a downward trend for much of the last 11 years and is now at its lowest mid-year level in two decades.

"I think that (a vacancy rate of 3.4 per cent) would be amazing, even if there was no recession," he said, adding five per cent is usually considered healthy.

He said 2.6 per cent is also an extremely low vacancy rate for the industrial sector, which has also enjoyed low rates for much of the past decade.

"Most marketplaces would love to have that kind of number, even in good times," he said.

Know of any newsworthy or interesting trends or developments in the local office, retail, or industrial real estate sectors? Let real estate reporter Murray McNeill know at the email address below, or at 697-7254.

murray.mcneill@freepress.mb.ca

The Johnson Report, published twice yearly by Royal LePage Dynamic Real Estate agent Wayne Johnson, is considered the most comprehensive report on the commercial real estate market in Winnipeg. Here is what the 2009 mid-year report, released last week, says about vacancy rates in the three key sectors of the market:

June 2009 December 2008 June 2008

Office (A,B & C) 4.6 % 3.7 % 3.9 %

Industrial 2.6 % 2.5 % 2.3 %

Retail 3.4 % 3.3 % 3.6 %

In the downtown office sector:

Class of space June 2009 December 2008 June 2008

A 3.9 % 5.1 % 5.0 %

B 5.6 % 3.0 % 4.0 %

C 3.7 % 2.5% 1.7 %

City of Winnipeg building permits

Major Projects for May

Address Building permit description Value

700 William Ave. Interior alteration - Hospital $3,800,000

400 Stradbrook Ave. Repair - apartments 540,362

1425 Regent Ave. Interior alteration - casino 1,769,000

301 Mandalay Dr. Alter exterior - apartments 560,000

305 Mandalay Dr. Alter exterior - apartments 560,000

1910 Pembina Hwy. Alter exterior - shopping centre 1,400,000

1070 Dominion St. Partial permit-foundation - school 2,800,000

1790 Portage Ave. Interior alteration - apartments 600,000

230 Princess St. Alter exterior - residential multi-use 500,000

476 Kenaston Blvd. Alter exterior - apartments 609,882

3977 Portage Ave. Construct new exhibition hall 821,400

87 Marine Dr. Construct new SFD & att. gar. 500,000

50 Southpark Dr. Interior alteration - apartments 650,000

349 Edison Ave. Interior alteration - apartments 700,000

191 Lombard Ave. Alter exterior - office 519,520

199 Commerce Dr. Construct new warehouse 1,500,000

820 Sherbrook St. Interior alteration - hospital 1,200,000

26 Bur Oaks Cove Partial permit-foundation SFD & att. gar. 500,000

3310 Portage Ave. Alter exterior - shopping centre 700,000

915 Elgin Ave. Partial permit-foundation - commercial 500,000

1840 Burrows Ave. Alter exterior - row housing 1,600,000

530 Waterfront Dr. Partial permit-foundation - apartments 600,000

548 Furby Pl. Partial permit-foundation - day-care centre 720,000

680 Pembina Hwy. Partial permit-foundation - commercial 650,000

Republished from the Winnipeg Free Press print edition July 20, 2009 B3