A Toronto developer is introducing a new product to the Winnipeg market this week — Class A office condominiums.
Fortress Real Developments is marketing the 60,000 square feet of Class A office space in its 45-storey SkyCity Centre residential/commercial tower as condos, rather than as leased space.
The Winnipeg office of Cushman & Wakefield has been hired to sell the space and will officially launch the product at an invitation-only brokers’ luncheon Wednesday.
Wayne Sato, the Winnipeg office’s vice-president of office leasing and sales, declined to disclose the asking price for the office space, saying that is among the information to be revealed at the luncheon.
The office condos will be located on the sixth and seventh floors of the $200-million SkyCity Centre tower, which is to be built on Graham Avenue between Smith and Garry streets.
There will also be retail space on the ground floor, indoor parking on floors two through five and 388 residential condos on the upper floors.
Sato said the condo space is available in a wide range of sizes — anywhere from 950 to 60,000 sq. ft.
A spokeswoman for Fortress said construction of the tower, which would be the tallest in the city, is still scheduled to get underway this spring.
She said more than 50 per cent of the residential units have been sold so far.
Office condominiums have been available in Winnipeg for a number of years, but Sato and Trevor Clay, chairman of the commercial division of the Winnipeg Realtors Association, said these are the first Class A ones to be offered here.
While the commercial-condo concept has been slow to catch on in Winnipeg, Sato said Cushman & Wakefield officials are optimistic there will be buyers for this product.
"It’s one of a kind. There is nothing like it in the marketplace. Based on what is happening in other major centres like Toronto and Vancouver, we think its time has finally come (in Winnipeg)."
Clay agreed the Winnipeg market is ready for some of its own Class A office condos.
"I think that really, the only thing that has been holding the market back is that there was no one taking on this kind of project — a top-tier, Class A type of opportunity."
He noted some of the condo complexes on Waterfront Drive included some office/retail condos on the main floor, but there were only a few of them and they weren’t Class A units.
"So I think there certainly is an opportunity in the Winnipeg market to take advantage of that," he added.
"There are a lot of companies that are having good success right now and have money they would like to put toward ownership of real estate."
Clay said it will come down to price and how many firms are willing to pay a premium for top-grade downtown space.
"I would agree the tenants who are willing to pay more than $30 per square foot in a brand new building would likely be willing to buy at that same rate," he added. "But if you’re a tenant paying $14 a square foot in a Class B building and you don’t need to be in a $30 (per square foot) building, it’s going to be a pretty hard argument to make that you’re justified in making that kind of investment."
Especially when they also factor in the cost of developing the unfinished space, he added.
Sato admitted that at the outset, buying new Class A space is more expensive than leasing it. But the gap has narrowed considerably now that rents for new downtown Class A space exceed $30 per square foot, he added. The buyer will also have an asset that should appreciate in value over time.
He said the recent trend toward longer-term leases also makes buying a more attractive option for some tenants.
"Fifteen years ago, the typical lease term was five to seven years. Today, the high cost of construction requires a longer amortization period to keep costs down. As a result, more and more tenants are signing 10-to-15-year lease terms," he said. "Naturally, paying rent to a landlord for such an extended period of time leads to the question of whether to own or buy."
Sato said Cushman & Wakefield has already been fielding inquiries from a number of potential investors, including professionals such as lawyers, engineers, wealth management companies, accountants, doctors and dentists. It’s also been getting calls from business owners who have purchased a residential condo in the complex.
"They see the advantage of being able to move their business to SkyCity and also occupying a residence in the tower. It’s kind of like the best of both worlds."
In addition to the brokers’ luncheon, Sato said Cushman & Wakefield plans to hold an investment event on Feb. 15 for people interested in buying an office condo as an investment property that can be leased out to someone else. He expects there will be interest from both local and out-of-province investors looking to diversify their portfolio.
"They see and recognize Winnipeg as a very stable market. So this makes sense from a business perspective and form an investment perspective."
He said marketing the SkyCity Centre space as condos, rather than as leased space, also made sense because there is already several hundred thousand square feet of leasable Class A office space included in the True North Square development that’s already under construction just two blocks further west on Graham Avenue.
"There is so much new Class A space for lease coming up that, strategically, we thought this was the right time for the right (condo) product," he added.