Downtown vacancy rate hits record high

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This article was published 09/01/2024 (641 days ago), so information in it may no longer be current.

Downtown Winnipeg’s office vacancy rate hit a record high at the end of 2023, following a trend of record highs since the COVID-19 pandemic occurred.

Meantime, the city’s suburbs saw a decrease in vacant office space.

Several businesses are leaving their downtown hubs before the end of their leases. Those who are subletting are often tacking on deals, like offering to pay a portion of the rent for new tenants.

And the office furniture is included, noted Paul Kornelsen, managing director of CBRE Winnipeg.

“Tenants in the market (get) a bit of deal, if they go the subleased route,” he said.

Downtown Winnipeg’s office vacancy reached 18.3 per cent by last year’s end (up from 16.3 per cent at the beginning of 2023). It’s the highest vacancy rate the CBRE, a national commercial real estate services firm, has tracked for the city.

Winnipeg follows a Canada-wide trend: the downtown vacancy rate in Canada hit 19.4 per cent, a new high, according to a CBRE report released Tuesday on 2023’s fourth quarter.

“I’ve never really seen such a strong tenant market,” said Ken Jones, an office and industrial specialist with Shindico Realty.

Pre-pandemic, clients would have to “make do,” taking the downtown office space they could, Jones stated.

“Now I could show them pretty much anything they want — multiple locations in multiple buildings,” he said of Winnipeg’s core.

He’s watched as landlords renovate their buildings, attempting to make them more appealing as employers call their workers back to the office.

The Richardson Centre — one of Winnipeg’s tallest towers, found at the corner of Portage and Main — is undergoing construction for a new tenant lounge and golf simulator facility.

The renovations are scheduled to finish early this year, a news release from property manager BGO Properties reads.

Roughly two-thirds of downtown workers have returned on a full- or part-time basis, according to the Downtown Winnipeg BIZ’s most recent statistics.

Jones said he’s helped a few companies downsize, but some are looking to expand. Most have settled on work policies, from remote to full-time in office mandates, he added.

Vacant downtown space shifted with the creation of True North Square, he noted.

Remote work and downsizing by large companies is a major contributor to the rising downtown office vacancy rate, Kornelsen said.

The COVID-19 pandemic sped up an existing trend of removing private offices and downsizing office footprints, he added.

Meantime, Winnipeg’s suburban office market has performed “very well,” Kornelsen stated.

Its vacancy rate dropped to 10.9 per cent in the final three months of 2023 from 12 per cent in the prior quarter. At the beginning of the year, the vacancy rate was 7.7 per cent.

Generally, businesses look for space in the city’s outer communities because of cheaper parking and a shorter commute between work and home, Kornelsen said.

Downtown safety concerns factor in for some but aren’t as common a reason for choosing the suburbs, he continued.

Winnipeg’s suburban office market is relatively small — about four million square feet overall, according to Kornelsen. When a large company uproots, it makes a dent in the CBRE’s vacancy rate.

The same goes for downtown, Kornelsen added.

“We’ve seen an inversion,” said Jino Distasio, an urban geography professor at The University of Winnipeg.

Downtown offices once had much tighter vacancies than their suburban counterparts, he noted.

Calgary’s downtown office vacancy rate was 30.2 per cent by 2023’s end. The number had declined — some spaces have been slated for residential conversion. The municipal government earmarked $153 million for grants of $75 per square foot to approved office redevelopments.

Converting downtown Winnipeg office space in a similar fashion could help improve Winnipeg vacancies, Distasio expressed.

“We need daycares in the downtown, we need grocery stores, so there’s lots of opportunity,” he said. “If the square-foot costs are amenable to those kinds of changes, hopefully we see a little bit of innovative and unique land uses in the downtown.”

Winnipeg has a solid track record of converting spaces, like warehouses and old offices, to residential buildings, Distasio noted.

Updating old office spaces may also help with retaining tenants, and with raising rent, Kornelsen said.

He expects “more stability” in the office market this year as the Bank of Canada releases new interest rate decisions.

Distasio hopes for more workers downtown and economic expansion in 2024.

“We’ve got to catch back up to what we lost during the pandemic,” he stated, adding downtown Winnipeg’s economy must grow at the same time.

Winnipeg’s high-quality industrial buildings are quickly leased, according to the CBRE report. The city follows a national trend where companies look to be closer to their end users, Kornelsen said.

Approximately 300,000 sq. ft. of industrial space is under construction in Winnipeg, with more in planning stages.

gabrielle.piche@winnipegfreepress.com