Winnipeg's commercial real estate developers could use more assists from tenants like NHL hockey player Alexander Steen.
The St. Louis Blues winger is the lead partner in a Winnipeg company that's opening a family entertainment centre in a new industrial/retail/office complex in southwest Winnipeg.
The numbered company is the first tenant to lease space in the 65,435-square-foot complex, which is nearing completion in the Sterling Lyon Business Park on Lorimer Boulevard. The complex was one of only two new multi-tenant industrial buildings built on speculation in Winnipeg in 2012, even though the city's overall industrial vacancy rate remained below three per cent for the fifth consecutive year.
And it looks like there will be only two built this year -- the 152,000-square-foot Discovery Place distribution centre under construction in the Inksbrook Industrial Park and a 40,000-square-foot industrial building to be built this summer in the Brookside Business Park, also in northwest Winnipeg. The Brookside building is being developed by Olexa Developments, the Calgary firm that's developing the business park.
The park's sales and leasing agent, Robert Scaletta of Shindico Realty Inc., said they're close to signing their first tenant.
He said they expect to start construction this spring and to complete the building -- the park's first multi-tenant building built on spec -- by this fall. One of the reasons there isn't more spec construction in Winnipeg is there aren't tenants such as Alexander Steen and his partners who are willing to pay the higher rents -- $10 to $13 net per square foot -- for newly built space. Not when the average net rental rate in older buildings is $4.75 to $6.50 per square foot and roughly $7 to $8 in 10- to-12-year-old structures, according to Wayne Johnson, a commercial agent with Royal Le Page Dynamic Real Estate and author of the twice-yearly Johnson Report on commercial sales and leasing activity in Winnipeg.
Although the gap in rental rates for new and existing space has been closing -- Johnson's 2012 year-end report shows the average rate rising from $4.23 to $6.31 per square foot over the last 10 years -- it's still well below the cost for new space.
Jarret Hannah, one of Steen's three local business partners and the spokesman for the group, said they paid close to $13 per square foot for their space.
He said they looked at other space in the southwest quadrant that was priced at about $10, "but we felt new was the way to go. This really was the best bang for our buck." Not only is the building new, it's a stone's throw from the new IKEA store and there are lots of young families living nearby in developments such as Linden Woods, Whyte Ridge and Waverley West.
That's the kind of customer being targeted by the partners, who also include Bobby MacKay, a partner at Advantage Wealth.
Hannah, who owns Jel Marketing Group, said the entertainment centre will include a 4,000-square-foot indoor playground.
"It going to be state of the art and it's going to have multi-attractions."
He said further details, including the name of the centre, will be unveiled within the next month or so.
Winnipeg's A & S Homes is the developer of the Sterling Lyon Business Park and has been one of the city's most active industrial builders in recent years, along with Terracon Development Ltd. and the British Columbia Investment Corp. (bcIMC).
A & S and Terracon are both moving to the sidelines this year because they still have space to fill in the buildings they built last year.
A&S still has roughly 53,000 square feet left in the building Steen's group will be moving into.
And Terracon has 45,000 square feet left in the 72,000-square-foot industrial/office complex it built last year in its Tuxedo Business Park.
Jane Arnot, the DTZ agent who negotiated the deal with the Steen group, said although there are no other deals in the works, "there's been a lot of interest" from other parties.
"It's such great space, because it's flex space" that can be developed as warehouse, distribution, showroom, office or retail space, she said.
Terracon's development manager, Michael Falk, said while the city's overall industrial vacancy rate is low, there is a fair bit of newly built space still on the market.
"The reality is that when you start breaking that (the vacancy-rate numbers) down... there is enough inventory (to meet the demand for 2013)," he added.
A local spokesman for bcIMC -- Shaun Rocan, Winnipeg vice-president of leasing for Bentall Kennedy (Canada) LLP -- said the developer wants to see how long it takes to rent out the remaining 92,000 square feet in Discovery Place before deciding whether to tackle another project.
Rocan said there's been a surprisingly high level of interest in the space from both local and out-of-province companies. "We've got a lot of irons in the fire. How many (prospective tenants) are we going to land? I don't know."
Martin McGarry, president of the DTZ affiliate in Winnipeg, predicted if the Discovery Place facility fills up fairly quickly, there will be an increase in spec-development activity in 2014.
"I bet we'll hit 300,000 (square feet of new spec space) in 2014," 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 204-697-7254.
HERE is the overall industrial vacancy rate (%)
in Winnipeg over the last 10 years:
Here is the average overall net industrial lease rate for the same period:
-- source: The Johnson Report