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It isn’t great, but it could be a lot worse in Winnipeg.
That’s a key takeaway from CBRE’s second-quarter report on the industrial and office real estate sector, which gives insights into how national and domestic markets were influenced by the turbulence of COVID-19. The quarter was the first to occur during the time of pandemic, and all things considered, Winnipeg appears to be in good shape.
"In comparison with other major markets, we have one of the most stable ones there is," said Ken Zacharias, a senior sales representative with CBRE with a focus on the city’s industrial market.
As expected, both the industrial and office sectors had a tough quarter: office vacancy rates increased to 10.2 per cent from 8.9 per cent, and the industrial sector saw a four per cent availability rate and 156,829 square-feet of negative absorption.
While those figures aren’t exactly cause for celebration, they aren’t cause for significant panic either: each figure puts the city square in the middle of the pack amongst major cities’ data.
Though the national average for office vacancy is 10.8 per cent, cities like Halifax (15.2), London (15.7), Edmonton (19.8), and Calgary (24.5) far outpace it. Over the last three fiscal years, Winnipeg’s vacancy rate has generally hovered around its current level. It’s much the same on the industrial side, with Halifax (6.5 per cent), Edmonton (8.7) and Calgary (9.7) with much higher availability than Winnipeg’s average of 3.5 per cent.
At a time like this, being average is a good thing, especially with more uncertainty ahead, Zacharias said.
He said while this quarter’s negative absorption — a measure that means more space was vacated or put on the market than was leased, indicating a decrease in demand — was extremely high, he suspects it will begin to creep in a positive direction during the third quarter.
Zacharias said though it’s not possible to predict the future, the industrial sector in Winnipeg and beyond is poised to benefit from the current market conditions. A reason for that is the burgeoning of e-commerce operations, which requires investment in domestic distribution space, as well as a renewed interest in bringing manufacturing on shore.
Much of that development will happen outside the city, in rural municipalities like Rosser and Macdonald, where there’s an abundance of space and higher quality facilities available.
But CBRE pointed to the establishment of a 250,000-sq.-ft. package-sorting facility in the St. Boniface Industrial Park as an example of the development the city and surrounding areas could see in the near future. The facility is well into construction, and Zacharias said he’s heard it could be ready to run by the end of the year.
"Industrial real estate is a bright light in a challenging period and businesses in this sector are grateful to have new supply to support the surge in e-commerce logistics activity," said Jason Kiselbach, Managing Director, CBRE Vancouver in a release. "We expect demand to grow in most markets and industrial properties to come out ahead in the wake of COVID-19."
Zacharias isn’t a specialist in offices, but he said even the gurus of commercial real estate can’t quite predict where office realty will end up. There are many elements up in the air, including the persistence of work from home strategies, companies hitting pause on lease agreements, and the spatial needs of employers.
Compared to the first quarter, office vacancy in Winnipeg did increase, and it came to a bit of a freezing point. But as reopening continues, and the third quarter gets underway, the industry will see whether the ice begins to thaw.
Ben Waldman covers a little bit of everything for the Free Press.
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