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Office vacancy rate to jump in 2013

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WINNIPEG'S office vacancy rate is expected to jump in 2013 as the supply of available space grows at a faster pace than the demand from prospective tenants, according to the latest forecast from Cushman & Wakefield.

The commercial real estate firm said in its 2013 Office Outlook report, which was released on Wednesday, Winnipeg's overall vacancy rate is expected to climb to 9.5 per cent by the end of the year as newly built space hits the market and large blocks of space in existing office buildings also become available.

That will erase all of the gains made in 2012, when a healthy level of leasing activity drove down the overall rate to 6.4 per cent by the end of the third quarter from 7.7 per cent a year earlier.

Brett Ferguson, managing director of the firm's Winnipeg office, said while the demand for office space will continue to grow at a modest pace, it won't be enough to keep up with all of the new space coming onto the market.

He said part of the problem is when new space comes onto the market in Winnipeg, it usually has to be filled by tenants relocating from other buildings.

"That's one of the challenges in the office market. It's a fairly limited marketplace because we don't have a lot of new businesses moving to Winnipeg."

And when those tenants relocate, that leaves space to fill in the building they're leaving, he added.

A prime example of that kind of domino effect was when IBM Canada decided last year to move most of its local operations out of its longtime home at 400 Ellice Ave, effective Feb. 1 of this year. That leaves 67,000 square feet of space to backfill in the three-storey building.

Another example is Western Financial's decision to consolidate four local offices at a single location -- the new Polo North office/retail development on the former Winnipeg arena site. It's expected to start moving into its new 100,000-square-foot regional office in the first quarter of this year, leaving space to backfill in three different Portage Avenue buildings.

Other buildings where significant blocks of space are expected to become available this year include the two National Research Council buildings at 435 and 445 Ellice Ave. and the Canadian Wheat Board building at 423 Main St.

The NRC announced last spring it would be vacating and selling its two buildings, and the CWB dramatically downsized last year after losing its monopoly over the marketing of Canadian wheat and barley so it no longer needs all of the space in its building.

Ferguson said all of these changes are expected to drive up the vacancy rate in downtown Winnipeg to 7.6 per cent by the end of 2013 from 6.4 per cent at the end of the third quarter of 2012.

And it's a similar story in the suburban market, where the vacancy rate is expected to jump to 15.4 per cent from 11.6 per cent.

Ferguson said one of the factors working in the downtown market's favour is the ongoing efforts to revitalize the area.

"Downtown Winnipeg is undergoing major transformation and revitalization that is already bringing new life to the area and will have a major impact on the city's long-term business and office growth."

Nationally, Cushman & Wakefield said continued low interest rates and a slow drop in the value of the Canadian dollar, among other things, will increase demand for office space in Canada in the second half of 2013.

It said while demand will be stable for the first half of this year, positive demand conditions are expected to follow.

The firm also cites a stabilized eurozone and the expected U.S. economic recovery as factors behind greater office space demand.

All those factors taken together will help "revitalize manufacturing and export growth," it added.


-- with files from The Canadian Press

Republished from the Winnipeg Free Press print edition January 3, 2013 B4

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