WinnipegREALTORS® Commercial Division chair Ken Jones, an independent broker affiliated with Shindico and a past-chair of the Winnipeg Chamber of Commerce, made a presentation at the association’s annual breakfast in January outlining how important the commercial market is to Winnipeg’s overall economic outlook.
What was his prognosis for 2013?
Jones was very positive about how the commercial market is shaping up. His first point was that the division does not have a rich and historic residential MLS® database to draw from, but anecdotal evidence shows the commercial market has witnessed solid and steady growth over the last few years as a result of a diversified provincial economy.
Jim Hrichishen, an assistant deputy minister of Manitoba Finance and the province’s former chief economist, was the feature speaker at WinnipegREALTORS® forecast event. A pie chart covering 14 different sectors of the Manitoba economy was shown, which indicated no single sector dominated as is the case in other provinces. At 11 per cent, manufacturing was the largest sector, contributing $57 billion to Manitoba’s GDP.
Hrichishen said Manitoba is one of Canada’s most economically stable provinces with a highly diversified presence in manufacturing, transportation, wholesale trade, agriculture, finance and insurance.
Not surprisingly, with global uncertainty and troubled economies worldwide, stability is something investors always seek. As a result, there is plenty of investment interest in Winnipeg. Two buildings, 330 St. Mary and 175 Hargrave, changed hands in 2012 for $38.9 million.
As a whole, the investment market in Canada is impressive with over $25.8 billion changing hands in 2012. The positive momentum is carrying forward into 2013.
Because long-term bond yields are so low and the stock market is very volatile, the “wall of money,” as it is referred to, is looking for a place to roost and increasingly it is going to commercial real estate. Real Estate Investment Trusts, or REITS, are prevalent with more being announced. Jones noted Loblaws is converting its 35 million square feet of real estate into a REIT, which is currently valued at $7 billion.
In Jones’ opinion, the bottom line is that when a commercial building comes up for sale, unless it is priced ridiculously high, it will sell in a relatively short period of time.
As for the office market, Class A or premium space downtown is fairly limited and the landlords are beginning to push the rates up as a result. Jones exapects to see net rates reach $20 a square foot.
The B and C markets are not faring as well. When the Canadian Wheat Board’s grain export monopoly ended in 2012, a significant portion of nearly 130,000 square feet of office space came onto the downtown market, which is an amount that will not be absorbed too quickly. As Jones said, if you are looking for 5,000 square feet, he could probably show at least a dozen choices and the landlords would be highly motivated to attract your business. So don’t expect to see rate increases in these classes.
One aspect of Winnipeg’s commercial market that differs from Toronto or Calgary is that you don’t “have” to be downtown to do business. Many companies are looking for suburban offices in Winnipeg, close to employees’ homes that offer cheap or free parking. The south and southwest parts of the city represent areas with huge pent-up demand for suburban office space.
The industrial market is very tight. While there may be 80 million square feet of industrial buildings, many of them are functionally obsolescent with low ceiling heights and occupying insufficent land. This factor alone should lead to an increased level of new industrial developments. Companies are looking to buy their own land to build their own buildings. In one area of Winnipeg, land prices have gone up from $100,000 to $175,000 per acre over the course of two years.
In the retail sector, forget about the monkey associated with this company and call it what it is — a 500-pound gorilla. IKEA is a major development for the city, and there are more arriving. Target is busy retrofitting the stores it acquired that will be opening later this year. Shopping mall officials are anticipating increased traffic due to Target being at their location and are ramping up for the increase with more redevelopment.
Other stores arriving in Winnipeg include Marshalls, Victoria’s Secret, Coach, Forever 21, Cabela’s, Famous Dave’s and Michael Kors.
Jones foresees a tight retail market presenting the challenge of finding vacancies in good locations. He expects rates to climb.
(Next week: part 2)