City set to tap a $50-billion market

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This article was published 02/03/2020 (2029 days ago), so information in it may no longer be current.

Commercial real estate broker CBRE is forecasting major investment in Canada’s commercial market in 2020, with domestic and foreign investors plowing as much as a record-breaking $50 billion into the sector — and Winnipeg’s market could reap the benefits.

“Canada has so many advantages, and so many underlying fundamentals that are positives over the long-term, that we certainly think that growth in the Canadian commercial real estate market is going to continue,” said CBRE Canada vice-chairman Paul Morassutti.

Major influxes of capital typically flow into bigger commercial real estate markets than Winnipeg, such as Toronto, Vancouver or Montreal, said Ryan Behie, a Winnipeg-based vice-president with CBRE.

“However, the domestic players who are increasing (capital) allocations look to compete with that foreign capital in those major markets,” Behie said.

“And in order to do that, they’ve already started (asset) disposition programs in the smaller markets. So they’re selling smaller, non-core assets in the smaller markets in order to compete with the foreign capital with the larger markets, and as a result that is unlocking good assets in smaller cities like Winnipeg.”

Behie gave the example of Kildonan Crossing Shopping Centre, which he said RioCan REIT sold last year as part of an asset disposition program in order to focus on core assets in larger markets.

“Large, local private capital jumped at the opportunity to acquire something like that,” he said.

At the national level, CBRE’s forecast calls for a slight increase in downtown office vacancy rates, from 9.8 per cent in 2019 to 10.2 per cent in 2020. Average asking rents for prime downtown office space in Canada will increase from $22.08 in 2019 to $22.84 in 2020, CBRE projected.

In Winnipeg’s downtown, the firm sees office vacancy rates climbing by 0.2 percentage points on an annual basis to 11.8 per cent in 2020, with asking rents for class A office space decreasing by $0.21 to $22.50 per square foot.

“And that is related to the new construction that has occurred downtown in recent years, that has created a glut of office space when you consider the market overall,” Behie said.

The forecast for suburban Winnipeg office space sees vacancy rates increasing from 5.7 per cent in 2019 to 7.5 per cent in 2020, with asking rents increasing by $1.03 to $16.95 per square foot. Behie described that trend as a regression to the mean after a strong 2019 that saw suburban office vacancy rates shrink.

Firms looking for commercial real estate in Winnipeg will be facing “a relatively tight market” in the year to come, Behie predicted.

“Touring multiple options of a desired size, location or quality is not going to be a luxury that most occupiers will have in 2020,” he said. “They’re going to have to move quickly when a viable option presents itself.”

As for Winnipeg’s stock of industrial real estate, CBRE predicts availability will increase by 0.3 percentage points from 2019 to 3.9 per cent in 2020, with asking rents increasing by $0.09 to $8.15 per square foot.

The slight increase forecasted for industrial vacancy rates is “the result of a strong market that has spurred new construction,” said Behie.

“And so we have some much-needed new (industrial) supply coming in 2020, and as that space is leased up throughout the course of the next year, or over a multi-year period, we expect to see some temporary times of some higher vacancy rates.”

CBRE’s national commercial real estate forecast warned of “significant structural issues” that could impact Canada’s urban commercial real estate in the coming years, including diminishing housing affordability that could drive people away from urban cores, insufficient transit infrastructure and the spectre of climate change.

“Left unaddressed, these forces have the potential to not only slow commercial real estate momentum, but worsen income inequality and sow the seeds of social discord,” said the CBRE report.

“Stability is attractive in times of uncertainty,” said CBRE’s Behie.

“And as we see the capital inflows coming from global players in our larger markets, and the trickle-down effect into Winnipeg, and as Canada is a stable market globally and Winnipeg is a particularly stable market within the Canadian landscape, I think we’re going to see positive capital inflows into Winnipeg.”

With files from the Canadian Press

solomon.israel@freepress.mb.ca

@sol_israel