The unqualified success last week of the second Winnipeg Real Estate Forum is testimony to a buoyant local commercial real estate market that is grabbing a lot of out-of-town attention. The full-day event was sold out with over 500 delegates in attendance from across the nation.
The calibre of panel members speaking at this forum was top-notch. The closing expert panel included Armin Martens of Artis REIT; Stephen Taylor, presdient and COO of Morguard Investments Ltd.; Michael Emory, president and CEO of Allied Properties REIT; Remco Daal, president and COO Bentall Kennedy (Canada); and Kevin Pshebniski, president of Hopewell Development Corporation.
Stephen Taylor said that Morguard’s institutional investors are experiencing 12-per-cent annualized returns from the local market as a result of strong cash flow and income, which helps explain why the biennial forum is now a fixture among Canada’s leading real estate conferences.
To emphasis his point, Armin Martens said Artis REIT had a recent $200-million public offering that was fully-subscribed in 120 days.
While there was plenty of positive comments about the commercial market, there is still a real concern that Winnipeg has the most expensive construction costs in the country and a shallow tenant-base compared to other markets. Another concern is Winnipeg is not an easy market to get into as you need to achieve sufficient scale to justify entry.
Opening speaker, Benjamin Tal, deputy chief economist for CIBC World Markets Inc., said interest rates will remain low due to a very conservative monetary policy over the next few years.
The REIT executives also felt there is no room for interest rates to go up at this time so it bodes well for real estate. REITs represent good value, as there is a 400 point spread between REITs and bond yields.
They noted Winnipeg’s office rents are still the lowest in the country, so investors seek them for stability and predictability.
On the economic outlook for Winnipeg and Canada, Benjamin Tal made a number of interesting points. He said Winnipeg is starting to catch up to other cities and its more diversified economy will take advantage of the U.S. and global recovery. He expects that Winnipeg will outperform the average of other cities and is positive about Winnipeg’s population growth.
He said Canada’s corporate balance sheet is extremely healthy with plenty of cash, dividends and investment. One challenge Canada needs to confront is that the U.S. is showing great strides in meeting the innovation needs of its manufacturing sector. Part and parcel of this requirement is to integrate manufacturing into the global supply chain. This presents an opportunity for Winnipeg’s CentrePort Canada with its foreign trade zone designation and a 20,000-acre inland port set up to expedite the movement of goods economically and efficiently to North American, Asian and European markets.
Tal said there are two reasons why a housing collapse will not occur in Canada. First, a huge increase in interest rates is required for a bubble to collapse and that will not happen. Therefore, continuing low rates buy time for a correction in a market that is overshooting. Second, we do not have a sub-prime market in Canada. He said that roughly five per cent of mortgages in Canada are in trouble compared to 25 per cent the U.S.
But he does foresee Canada’s real estate market leveling off, which will be crucial to the health of the country.
The Altus Group was quite bullish on Winnipeg since it is outperforming the national average in commercial real estate, with retail leading the way. An interesting observation on the retail market is that there is one-third less retail space per capita in Canada than the U.S., and the prairie region has even less than Canada. Altus foresees upward pressure on retail rental rates.
With respect to the industrial market, it was viewed as doing extremely well with 13 million square feet absorbed in 2011 and another 1.6 million picked up in early 2012.
Winnipeg has a major industrial market in comparison to its population. In contrast, its office market is underweight, especially compared to markets such as Calgary and Ottawa. There is plenty of available space to lease in Winnipeg.
The big question to ask is what Winnipeg will choose to do with its older office stock, while the newer stock is in great shape with only 10 building s erected since 1990.
A good message for investors to heed from Altus is to be leery of averages as they vary widely. What matters is a company’s portfolio strategy, its management expertise and its depth and breadth of skills.
Greg Dandewich, of Economic Development Winnipeg, was able to back up some of Winnipeg’s strong growth numbers with some strong attributes such as an educated and skilled workforce (e.g. 11,000 graduates annually), high labour force participation and low unemployment rate, high capital investment and a high collaboration between the public and private sectors.
Phil Sheegl, CAO of the City of Winnipeg, made it very clear Winnipeg is a city of opportunity. He is doing everything within his power to help create an environment where more innovation and entrepreneurship are nutured. He cited the explain of streamlining the processing times for building permits by allowing applicants to get professional seals instead of having to wait for city approval.
Sheegl said the city is striving to become excellent service providers to facilitate more investments coming to Winnipeg.
Curt Vossen, president of Richardson International Limited, was very positive about his company’s head office growth possibilities in Winnipeg. They do 90 per cent of their business outside Canada and it is done entirely from Winnipeg. He said the hallmark of his company’s success has been its strong employee base, who have all the learning and training they require at the locally.
Vossen foresees opportunities for new technology and new product development, and reminded the audience that canola is a $15-billion crop that was developed at the University of Manitoba.
University of Winnipeg president Lloyd Axworthy caught everyone’s attention with a comment about how strategic a university can be as a creative power of innovation and building a community. The University of Winnipeg has put through $200 million worth of development into the city.
Panelists discussed all sorts of important aspects of Winnipeg’s commercial real estate market. For example:
• On land development, how much money do you spend guessing what obstacles you have to overcome?
• With the federal government takeover of the provincial nominee program, will the immigrant population still be there in coming years to drive OurWinnipeg’s population growth projections?
• And you need to be patient in Winnipeg as things do not move as quickly as we would like them to (e.g., better transportation connectivity, including a full-fledged rapid transit plan).
Of course, how do you not go through a full day at a forum without hearing about the return of the Winnipeg Jets. Don White, the immediate past chair of the WinnipegREALTORS® Commercial Division had an entertaining back and forth conversation with True North Sports & Entertainment chairman, Mark Chipman, on the strategy being used to revitalize downtown Winnipeg and to bring back the Jets.