True North tower spikes vacancy rates

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This article was published 29/10/2018 (2570 days ago), so information in it may no longer be current.

The latest snapshot of the real estate market in the country’s major cities shows once again that Winnipeg’s cautious, slow growth in the sector equals a healthy market.

The completion of the True North Square office tower — the only new downtown office building to come on the market in the entire country during the third quarter — adds 365,000 square feet of space to the market and has doubled the Class A downtown office vacancy rate from a year ago to 12.5 per cent, a report released last week by the national real estate firm CBRE shows.

In the third quarter, the city’s overall office vacancy rate was 10.7 per cent, which was better than the national average of 12.4 per cent, about 2½ times lower than Calgary’s average and 50 per cent less than Edmonton’s.

Meanwhile, the vacancy rate for the industrial sector is at an all-time low of three per cent, down from 3.8 per cent a year ago.

It marks the eighth consecutive quarter of a tightening Winnipeg industrial market.

The results echo what professionals have been saying for some time: there is pent up demand and not enough supply to satisfy it.

But that is starting to change.

For starters, the single largest vacant building on the market — the 420,000-square-foot former Safeway distribution centre on King Edward Street — is about to become occupied. The building’s interior and exterior are being redeveloped.

According to Trevor Clay, principal of Capital Commercial Real Estate Services and chairman of the Winnipeg Realtors Association’s commercial division, “Two major tenants have entered into deals for the majority of the property.”

One of them is Manitoba Liquor & Lotteries.

“This space will accommodate a new liquor distribution centre, replacing our current liquor distribution centre located at 1555 Buffalo Pl. We anticipate moving our operations to the new location in late 2019,” MLL spokeswoman Andrea Kowal said, adding that MLL’s distribution centre has reached capacity and expansion was not viable.

Industry players believe the market lacks expansion capacity.

Ryan Behie, managing director for CBRE in Winnipeg, is bullish on the general growth dynamic of the city, but the ongoing shortage of industrial space is cramping everyone’s style.

“It’s very hard for users to find space,” Behie said. “From the city’s point of view, it shows there is activity going on, but it’s hard to service clients.”

He said from a 100,000-foot perspective, it is a great news story about the economic pie that has been expanding in Manitoba for a long time, with the traditional backbone of the Winnipeg economy — shipping and manufacturing — growing steadily quarter over quarter and year over year.

“But the industrial real estate inventory has not been expanding and growing and keeping up pace,” he said. “So we are missing out on some of the growth for these industrial users who would either enter the market if they could find good quality real estate, or expand… if they could find the real estate that could service them.”

New industrial parks in Centreport have been selling out quickly, and there was almost twice the absorption of new industrial space during the third quarter of this year compared with the same quarter last year.

“I have always thought of Centreport in a very positive light for a number of years, but it has been slow to get started… and most of that has been around (water and sewer) servicing,” Behie said.

“Now that servicing is in place, and it’s continuing to spider throughout Centreport. The demand is there, and now we are seeing all that growth being realized in Centreport.”

On the office front, while True North Square is spiking vacancy rates, Clay, for one, believes the market is healthy enough that the space will eventually be filled.

“It certainly is going to have a short-term impact on vacancy rates, no doubt,” he said. “But downtown Winnipeg has become a more attractive place to do business.”

Clay said the increase in the amount of empty offices is not causing landlords to drop rates, but it is inspiring them to invest in the space to make it more attractive.

“The impact long-term is going to be different, asset by asset, but overall it will certainly be a short-term disruption in the market in terms of vacancy,” he said. “In the end, we anticipate there will be a flight to quality.”

Winnipeg has never had a red-hot office market, and so a new building such as True North Square is bound to cause some shuffling of the deck. But there is one anomaly in the market that has skewed the supply and demand on the office front: SkipTheDishes.

In five short years, the meal-delivery company has gone from a handful of employees to just about 2,000, now housed in three buildings in the East Exchange and one in the West Exchange.

Clay said it has created the rare occasion where vacancy rates in Class C buildings — the way the industry characterizes the brick and beam buildings that populate the Exchange District — are below 10 per cent, which is very close to the Class B market and below the Class A market.

martin.cash@freepress.mb.ca