Winnipeg core’s empty-office problem not likely to change for a while
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The state of Winnipeg’s downtown office vacancies will continue to remain in limbo for the time being, despite the city drawing another string of encouraging numbers in the fourth quarter of 2022.
According to a recent national report from CBRE, 15.7 per cent of office spaces in the city’s epicentre are searching for tenants. Winnipeg is one of three examined regions in the country to stabilize or see a drop in availability this quarter (Waterloo Region, Halifax).
While the 0.4 per cent drop from the third quarter is notable in that it’s the second-consecutive quarter that vacancy rates have dropped slightly, it remains much higher than the 10.8 per cent of barren office space the city had prior to the COVID-19 pandemic.
“Yes, the numbers are going in the right direction, but it’s still a big problem,” said Paul Kornelson, Manitoba vice-president and managing director at CBRE, the global real estate services organization. “We’re still in this zone of being historically high.”
Kornelson added a looming project that could exacerbate the problem is the Wawanesa building at 372 Graham St., a 350,000-square-foot tower that is expected to be completed later this year.
“In Winnipeg, we don’t have the leasing velocity to withstand a bunch of new supply coming on,” he said.
“My feeling about (the state of downtown office vacancies) is, let’s not be optimistic. There are some signs that the office market won’t go away, but it’s going to get worse before it gets better.”
Wawanesa Insurance, however, said the firm does not currently plan to move from its downtown buildings.
“Wawanesa is deeply committed to downtown Winnipeg with both our new and existing office properties. Our new North American Headquarters at True North Square will help bring more people downtown, especially the over 1,000 Wawanesa employees we are building this tower for,” said Gord Dowhan, the firm’s chief financial officer.
“With regards to our existing real estate portfolio, we recognize we hold some of the most central and historically significant properties in Winnipeg’s downtown. Wawanesa is committed to seeing our community prosper, and it is important to us that we are responsible stewards of these spaces. We look forward to sharing our plans (for the properties) at a later date.”
Kornelson, who works downtown, said a positive sign he’s noticed is more foot traffic in the area. Adding to potential optimism is the impending return to work for government employees. In December, the federal government announced a mandate for public servants to work at least two to three days a week in person, or between 40 to 60 per cent of their regular schedule, by March 31.
“The entire industry of the office market is in a state of rethinking, ‘How much space do we have? How do we use our space? Why do we want our employees to come into our space?’ he said. “Everything is going into a recalibration process.
“Winnipeg has shown historically to be very resilient in terms of when there’s market downturns… and I think that’s what we see. I think that’s the story of the last couple of quarters and hopefully, the first couple of quarters (in 2023) we can continue to be resilient.”
The solution, Kornelson suggested, is organic growth in the office market like its seen in recent years with Skip the Dishes — which occupies more than 95,000 square feet across four-and-a-half floors at True North Square — and Ubisoft, which announced the goal of creating 200 more jobs in Manitoba by 2030, last March.
“You kind of hope that we could hit on a couple of those in the next couple of years,” Kornelson said.
One thing that can avoid being left to chance is the redevelopment of old buildings, such as the ones Wawanesa will soon leave behind.
Sean Kliewer said converting dated properties to residential units and hotels will be crucial to the revitalization of downtown Winnipeg and decreasing office space availability.
“What is the highest and best use for it?,” the VP of office at Colliers International said. “Older office buildings aren’t quite suitable for work environments but they can be converted to residential. It’s the evolution of change in real estate.”
“I think we’ll see a bump in (vacancies), tied to the Wawanesa scenario… but I think we’ve sort of stabilized if you will. I think a lot of companies have navigated and are having more confidence in what decision they are going to make from a hybrid-work perspective.
Indeed, agents like Kliewer are not only navigating the popular hybrid-working model, which he believes is here to stay, but the increased popularity around office space in suburban areas. Just 8.7 per cent of work space outside the downtown core are vacant, down from 9.6 per cent last quarter.
“That being said, I’m still optimistic as this thing continues to roll out — there still continues to be that push and rationale of why people are going to the office. There’s purpose behind it,” Kliewer said.
“As it’s always been, good real estate will continue to lease and sell. Some of the challenged stuff is going to have to be reimagined, repurposed and redeveloped.”
Joshua Frey-Sam happily welcomes a spirited sports debate any day of the week.
Updated on Monday, January 30, 2023 4:12 PM CST: Clarifies that Wawanesa Insurance does not currently plan to move from its downtown buildings.