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Mid-box units stand empty

Casualties of restructuring

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John Prall of Colliers International outside the vacant former Office Depot at Madison Square, bought for redevelopment by the Toronto-based Strathallen Acquisition Corp.

EMILY CUMMING / WINNIPEG FREE PRESS Enlarge Image

John Prall of Colliers International outside the vacant former Office Depot at Madison Square, bought for redevelopment by the Toronto-based Strathallen Acquisition Corp. Photo Store

For more than a decade, big-box and mid-box stores have been springing up around the city as part of a wave of new retail development in Canada.

But now at least half a dozen of these mid-box -- 20,000- to-50,000-square-foot -- outlets sit empty on major thoroughfares such as Pembina Highway, Regent Avenue and St. James Street.

Most are victims of corporate restructuring and changing retail trends, and landlords and real estate agents are finding it a challenge to backfill some of these spaces.

Part of the problem is there are fewer retailers looking for outlets in that size range. With the rising popularity of online shopping, the growing trend now is toward smaller bricks-and-mortar stores.

Location can also be an issue. Most mid-box retailers want to be part of a cluster of stores in a popular retail hub or node, such as Polo Park or the Kenaston-McGillivray area. So even if a vacant outlet is on a major retail strip such as Pembina Highway, it can still be a challenge finding a replacement tenant.

Two examples are the former Office Depot outlets on Pembina Highway and in the Madison Square shopping centre on Ness Avenue. Both have been vacant since the U.S.-based office-supplies retailer shut down its Canadian operations in June 2011.

Another is the former Future Shop outlet on Regent Avenue. Even though it's in the busy Regent-Lagimodiere retail node, it's been dark since February last year when Best Buy Canada closed 15 stores in Canada as part of a corporate restructuring that includes the opening of smaller web stores and mobile locations.

While it's cold comfort, Winnipeg isn't the only market where there's been difficulty backfilling some of these outlets. The same thing is happening in cities across the country, according to Maureen Atkinson, senior partner with the Toronto-based retail consulting firm J.C. Williams Group.

'Things are evolving practically every day in retail right now, as people kind of experiment with what works'

"Things are evolving practically every day in retail right now, as people kind of experiment with what works," Atkinson said in a recent interview.

In some cases, that means vacating a larger space altogether, and in some cases it means retaining only a portion of it.

"Some of it is driven by online shopping. You still want to have (retail) stores, but rather than stocking everything, you may have some of everything."

Atkinson said in most cases, the owners of these vacated properties just have to be patient.

"If it's well-located and highly visible, there are lots of businesses that can find uses for it," she said, although it may be a different type of business.

"They could become a gym, for instance, and some car dealerships are starting to do more indoor spaces. So it is possible to find other uses. It just takes awhile."

John Prall, a retail sales and leasing specialist with the Winnipeg office of Colliers International, agreed replacement tenants usually aren't found overnight.

"It's not because the market is not healthy, it's because the market is readjusting," Prall said. "But the reality is you've got to be patient, and in some instances you've got be prepared to invest a substantial amount of money on reconfiguring the space."

That's what the new owners of Madison Square are doing. Toronto-based Strathallen Acquisition Corp. bought that and two other local shopping centres -- Rougeau Plaza on Regent Avenue and St. James West Plaza adjacent to Madison Square -- earlier this year from Winnipeg's Fairweather Properties Inc. It now plans to spend an undisclosed sum redeveloping Madison Square's 26,000-square-foot former Office Depot space into three or four smaller units.

Prall, the leasing agent for the space, said a local company has leased about 10,000 square feet of the space, and discussions are ongoing with several other prospective tenants.

"We're optimistic that we will have all of the space leased or spoken for by the end of the year."

In the meantime, Strathallen will be installing a new facade, subdividing the space and adding new entrances and rear loading areas for each new unit. Prall said that work will be getting underway shortly.

He noted not all larger-format outlets are a challenge to backfill. Alberta-based Peavy Industries Ltd. snapped up the 40,000-square-foot former McDiarmid Lumber store on Nairn Avenue before it was vacated.

It's now the site of its first Winnipeg Peavy Mart store.

"But it was really just a good-timing opportunity more than anything," Prall added.

The owners of the former Sport Chek and Office Depot outlets on Pembina Highway, and the former Future Shop store on Regent Avenue haven't been as lucky. Leasing agent Shindico Realty Inc. is still seeking replacement tenants for all three outlets.

However, John Pearson, a commercial broker/developer with Shindico, said the company is in negotiations with prospective tenants for the former Future Shop and Sport Chek outlets, and is reviewing its options for the former Office Depot location.

He said the first preference is to find another single tenant to lease each of the spaces, although subdividing the spaces is also an option.

"But dividing is an expensive proposition. You have to split the electrical and mechanical (systems), and that gets expensive."

Pearson said the demand for mid-box outlets has softened across the country, "and Winnipeg is feeling a little bit of that as well, although not to the same extent as in some other areas of the country," he added.

"And our retail sector is still quite buoyant in some other categories," he said, including the big-box, restaurant, and small-retail categories.

 

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 204-697-7254.

murray.mcneill@freepress.mb.ca

Republished from the Winnipeg Free Press print edition May 5, 2014 B3

History

Updated on Monday, May 5, 2014 at 6:37 AM CDT: Replaces photo

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