The dynamics of commercial and industrial real estate markets in a city like Winnipeg do not change overnight.
For the longest time — think back to the mid-’90s when the Jets 1.0 left town — it would have been accurate to describe the commercial real estate market in the city as boring and stagnant.
There was next to no new building construction, and the aged building stock that the city is famous for was not so much seen as an opportunity to create a heritage feel as it was an opportunity to attract tenants with cheap rent.
According to some industry experts speaking at the annual State of the Industry Luncheon organized by BOMA (Building Owners and Managers Association) Manitoba, those days are over.
Granted, the well-attended event was wall-to-wall industry professionals who want nothing more than to see property values go up, lease rates go up and new buildings built.
But there was a matter-of-factness surrounding the observations that the dynamic has changed. And that was despite the fact that Rennie Zegalski of Capital Commercial Real Estate Services noted retail vacancies in Winnipeg are at six per cent (compared to a national average of less than three per cent), while Don White of Private Pension Partners and Colliers International said the downtown office vacancy rate is around 13 per cent (it’s less than five per cent in downtown Toronto) and that vacancies will probably go up next year.
Many believe the change is already taking place.
Zegalski pointed out the number of vacant streetside retail properties that dot the downtown. He believes those kinds of properties will very quickly be in great demand.
"There are prominent vacancies on major corners downtown. It is unfortunate," he said. "But it is just part of the cycle. Moving forward, those are going to be some of the best opportunities as our downtown densifies (with residential tenants moving into buildings like the True North Square tower and the 40-storey Artis REIT apartment building under construction). That is the future."
Zegalski is a professional optimist, but he said, "A year from now, I believe there will be a lot less of those vacancies."
It’s not as if building cranes are everywhere, but it’s not nearly as hard to find them as it used to be. White, who has been in the commercial and industrial market in Winnipeg for 25 years, said the breadth of new product that has hit the market across the board — retail, office (downtown and suburban) and industrial — has changed the market more dramatically than at any other time in his career.
"Ten years ago, we all longed to be a bigger, better city," he said. "That required new building and good people starting investing in the suburbs and downtown... It’s a real testament to the believers in this city... the Artis REITs and the True Norths of the world. People who believed in the city making major investments. Now, for the first time ever, we have a lot of new real estate in every asset class."
Among other things, White says that means landlords of buildings that need upgrading will be in trouble if they start the new year without any plans to do so. It also means that when tenants leave a building for something bigger and better, the landlords who lose those tenants should see it as an opportunity to improve their property, which may even mean they will be able to raise rents.
It means people like Bryce Alston of Alston Properties Ltd. can buy a 14-storey building at Main Street and Bannatyne (433 Main St.) that has struggled with vacancies for many years (and now sits at 30 per cent empty) for the low, low price of $65 per square foot. Next year, he’ll start converting the top nine floors into residential units. The project will likely alter the dynamics of another downtown block that has been boring and stagnant for many years.
"Next year, three major tenants are leaving and it will be 70 per cent vacant," he said. "That created an opportunity for us. We will be making significant upgrades to the building system and the building envelope. We’ll be adding some flair to the building. It is a seemingly tired looking building that does need to be repositioned."
Transforming a drab mid-’70s box of an office building into another vehicle will continue the transformation of the city’s downtown, creating more downtown residents, more demand for those vacant street-front retail properties and maybe even inspire other neighbouring landlords to upgrade their buildings.
Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.