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Overall office vacancy rate rises in city

Fewer firms have their HQs in Winnipeg

By: Murray McNeill

Posted: 12/21/2009 1:00 AM | Comments: 0 (including replies)

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Paul Kuzina, office lease specialist with CB Richard Ellice Chartier & Associates, says 2009 was a bad year for office leasing in Winnipeg.

The global recession put a choke hold on office leasing in Winnipeg in 2009, with one industry player describing it as the worst year since the late 1990s.

Although the final 2009 numbers won't be available until sometime next month, Colliers Pratt McGarry president Wayne Pratt said it was the easily the worst year in the last decade for office leasing.

"There was very poor... demand," Pratt said, adding it was a by-product of the global economic recession which led to some local branch office closings and a retrenching for many local companies.

Paul Kuzina, an office leasing specialist with CB Richard Ellice Chartier & Associates, said he wasn't sure if it was the worst year in a decade, but it was certainly one of the worst.

In its 2009 fourth-quarter office market report issued late last week, CB Richard Ellis said Winnipeg's market didn't escape the recession unscathed, even though the local economy weathered it better than most.

It said the city's overall office vacancy rate jumped from 5.6 per cent in the fourth quarter of last year (when the recession began to take hold) to 8.1 per cent in the final quarter of 2009. But even with the sizeable jump, it still had the third lowest overall vacancy rate among the 10 Canadian cities it surveyed for its report, the national firm said.

Kuzina also said that corporate downsizing and a retrenchment by many local companies were the main reasons for Winnipeg's rising office vacancies. CB Richard Ellice said the rate for Class A office space jumped to 8.8 per cent from 7.1 per cent and the rate for Class B space climbed to 7.3 per cent from 5.4 per cent.

The skyrocketing cost of office renovations was also a deterrent, said Wayne Johnson, a commercial and leasing specialist with Royal LePage Dynamic Real Estate.

"People aren't moving around as much," said the author of the twice-yearly Johnson Report on commercial leasing in Winnipeg.

All three agents said they expect the local demand for office space to pick up next year as the local and global economies rebound and private sector firms start feeling more confident about expanding their operations. But they warned it won't be a dramatic improvement.

"We're not expecting it to be a great year," Pratt said.

Johnson said that pretty much sums up the performance of the Winnipeg market for the last eight years.

"Two thousand and one was probably the last good year we had," he said, noting it's the last time more than 400,000 square feet of office space was absorbed in a single year.

Up until then, 400,000 square feet a year was considered a normal volume of leasing for Winnipeg, he said. But since then, the market hasn't even been able to crack the 300,000-square-foot threshold.

"So maybe this (less than 300,000 square feet) is the new norm. They (the yearly totals since 2001) are not dismal. There's nothing terrible about them. They're just not very good."

Kuzina agreed it probably is the new norm because Winnipeg has fewer head offices now -- they tend to need lots of space -- and fewer new companies moving to the city.

"And I haven't seen any changes in our economy or any (market) dynamics that would change that," he said.

Aside from Manitoba Hydro's new downtown headquarters, Kuzina said there has also been little new office space added to the downtown in recent years. And soaring construction costs have a lot to do with that, as well.

He said developers would have to charge at least $25 per square foot just to recover their construction costs and make a decent return on their investment. But the going rate for Class A downtown office space is still hovering at around $16 to $17 per square foot, which makes it economically unfeasible. Johnson said what new construction there is has mostly been occurring in the suburbs.

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 e-mail address below, or at 697-7254.

murray.mcneill@freepress.mb.ca

How the space is rented

Here is a summary of annual Class A to C leasing (in square feet) in Winnipeg over the last 10 years:

Class A Class B Class C Total

1999 31,987 246,000 198,337 476,326

2000 61,169 135,130 31,271 227,570

2001 210,931 190,827 29,690 431,448

2002 18,196 53,025 9,377 80,598

2003 82,214 160,579 37,465 280,258

2004 34,201 74,729 11,111 120,041

2005 118,922 134,173 7,578 260,673

2006 80,798 88,154 21,637 190,589

2007 75,583 30,206 25,419 131,208

2008 44,767 209,671 5,580 260,018

-- Source: The Johnson Report

Republished from the Winnipeg Free Press print edition December 21, 2009 B6

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