New office space at True North Square causes downtown shuffle

Hey there, time traveller!
This article was published 28/01/2019 (2478 days ago), so information in it may no longer be current.

With 365,000 sq. ft. of new True North Square office building space on the market, it is no surprise that the vacancy rate in downtown office space has gone up.

The CBRE quarterly statistics for the last period of the year put that rate at 10.8 per cent, up from 8.6 per cent at the end of September.

It may just be an attempt by real estate industry professionals to put lipstick on a pig, but according to Wayne Sato, an office leasing and sales broker and vice-president at Cushman & Wakefield Winnipeg, the current office market in Winnipeg is very active.

Sato says there’s been more activity in the past 15 months than he has seen before in his career.

“2018 was really interesting,” he said. “When we looked at the economics, it’s not really tilted strongly to either the landlord or the tenant. We are calling it an ‘opportunity’ market.”

What he means by that is that landlords are spending more money to upgrade buildings and increase inducements to secure tenants. And tenants are spending considerable sums to make a move because they are using office space differently.

“Landlords are saying they need to secure tenants now so they are loosening the purse strings a little,” Sato said. “I guess what they would say is that, with the new office requirements coming down the road, they have the opportunity to redo their premise for the long term. Part of the equation is the densification of their office space.”

The tech explosion in cities across North America, including Winnipeg, is helping to energize and rethink office use. Increasing emphasis on collaboration in the workplace is leading to more open-space workstations with lots of meeting and conference rooms. Generally more efficient design and engineering means the sheer square footage space demand is not the same.

For instance, Sato pointed out that Ceridian’s new lease for 28,000 sq. ft. in True North Square is 20 per cent less space than they have in their current location.

“Their business has evolved and the way they utilize space has changed,” Sato said. “They have been able to get more efficient space.”

Parachuting True North Square into what had been a placid, extremely stable market is causing an obvious disruption. And it’s happened while three new trends are occurring across North America, according to Sato.

For one, the tech explosion is creating a spurt of new demand for space, not just a shuffling of the deck, but organic demand.

“This (tech industry) office sector brings with it a new millennial workforce that is more collaborative and focused on flex hours and the work environment,” Sato said.

Another new trend is toward collaborative workspace. Regus, the legacy player in that space, has a couple of centres in Winnipeg — full floors in 210 Portage Ave. and 330 St. Mary Ave. — and is said to be interested in taking up more space.

WeWork, the largest new player, is not yet in Winnipeg, and another company called Space just announced nine new locations across Canada in 2019, also bypassing the local market. But Winnipeg entrepreneur Jason Abbott’s Launch Coworking Space has one south Winnipeg location and is in the process of finalizing a downtown space.

“This is a win for landlords as third parties will take down head lease space and take on the task of filling space for the landlords,” Sato said.

The third new trend is the densification of office requirements, potentially turning private offices into an endangered species. Ten years ago, personal offices averaged 140 square feet per person. Today, more employees work from work stations occupying about 40 sq. ft.

In Winnipeg, these trends are occurring with the backdrop of a big new building in a market that is not known for significant office absorption. With close to 170,000 sq. ft. of space at True North Square now spoken for by TDS, MNP, Scotiabank and Ceridian, that means about that same amount of space has been left empty in other buildings.

“The interesting thing about True North Square is that it forced every building owner in Winnipeg to re-evaluate their real estate portfolio and judge it against TNS,” Sato said.

It may have prompted Artis REIT to spend millions re-cladding 360 Main St. Another Portage and Main building, 201 Portage Ave., has added new tenants like BDO, Taylor McCaffrey, IGM and Wellington Altus and has almost made up the deficit from losing MNP and TDS.

While it may have been an active leasing market in 2018 — this is Winnipeg, after all — after this round of musical chairs is done, leasing activity will slow down.

“For the most part, these are the same companies and they are not growing. If anything they are being more efficient and taking smaller footprints,” Sato said. “Landlords understand that. That is why they have been very aggressively trying to secure tenants.”

martin.cash@freepress.mb.ca