Offices start to fill the spaces
Downtown leasing surge may signal sector's revival
Mon Feb 18 2008
By Murray McNeill
AFTER spending the last few years on the outside looking in, Winnipeg's office market may finally be joining the local real estate party.
The president of one of the city's largest commercial real estate firms -- Colliers Pratt McGarry -- said a number of leasing deals are in the works that indicate the demand for downtown office space may finally be heating up.
"I'm a little surprised the (leasing) activity hasn't been better than it's been," Wayne Pratt said in an interview, especially given Manitoba's strong economic performance over the last couple of years and all that's been going on in the other three segments of the commercial real estate market -- retail, industrial and investment properties.
The city's retail sector has been going through a construction and leasing boom in the last four or five years. Demand has also been brisk for industrial space and for investment properties.
"But maybe it (an increase in office leasing activity) is starting to show in '08," Pratt said. "Maybe there has just been a bit of a delay."
In its latest office market report, prepared in December and posted recently on the company's website, Colliers Pratt McGarry pegged the downtown office vacancy rate at 7.3 per cent and predicted there would be only a moderate improvement in 2008.
But that was before this recent spurt in leasing activity, Pratt said.
"I would say we're very optimistic the office market performance will be better than was forecast."
The spate of activity he was referring to includes two tentative deals that would see two different tenants lease just over two-thirds of the 73,000 square feet of Class A space that became available in the Canwest Place (formerly Canwest Global Place) office tower after last year's merger of Agricore United with Regina-based Saskatchewan Wheat Pool (now called Viterra). Pratt said Colliers officials are optimistic both those deals will be completed.
Colliers is also close to striking a deal with another firm that's interested in leasing the top floor of the Credit Union Central Building at 317 Donald St., he said. That 16,493 square feet of space has been vacant since the building opened in 2005.
A spokesman for the owner of the downtown Cityplace office tower said tenants have been found for most, and possibly all, of the 68,168 square feet of space that has been vacant in the building since last August. That was when CN moved its call centre from Cityplace to the Commodity Exchange Tower at Portage Avenue and Main Street.
The manager of the Winnipeg office of Morguard Investments Ltd. said Morguard is close to completing a deal with another company that wants to lease about 60,000 of the 77,000 square feet of space that Manitoba Hydro will be vacating at 444 St. Mary Ave. when it moves into its new downtown office tower at Portage and Carlton Street later this year.
Karen Lund said that deal could be signed as early as this week. She refused to disclose the identity of the prospective tenant, but industry rumours suggest it's Great-West Lifeco.
G-WL CEO Ray McFeetors confirmed the Winnipeg-based insurance giant is looking for additional office space in the city.
"Beyond that, that is all I care to say at the moment," he said.
Lund also said the demand for downtown office space has been heating up in the last few months, and that it's a broad-based demand.
"The city, the province, the feds and businesses are all looking for space."
Cityplace spokesman Elliot Katz, asset manager for Shelter Canadian Properties Ltd., said two federal government departments -- Justice and Veterans Affairs -- are leasing the bulk of the vacant Cityplace space.
The City of Winnipeg has expressed interest in leasing the remaining 11,000 to 12,000 square feet for its proposed new 311 telephone service, Katz said.
Although Pratt and Lund said they think the recent flurry of office-space leasing activity could be the beginning of a rebound in that market, another local realtor doesn't see it that way.
Wayne Johnson, author of The Johnson Report, a twice-yearly report on vacancy rates in the city's office, industrial and retail markets, said office leasing activity has been sluggish for the last four years and the recent spurt isn't enough to persuade him that trend is about to change.
Johnson said many of the factors that have had a dampening effect on downtown office leasing activity still exist. There still aren't a lot of new businesses moving to the city, and there still aren't a lot of local businesses expanding operations and snapping up more space.
Also, soaring construction costs have driven up the cost of office renovations and improvements, Johnson said, which has discouraged many companies from moving to different quarters. There are no signs that's going to change anytime soon, he added.
The Class C sector, meanwhile, saw its vacancy rate drop to 1.7 per cent from 3.4 per cent, Johnson said.
As for 2008, he doesn't predict much change from 2007.
"I think it's safe to say there is going to be limited (leasing) activity."
In its most recent market report, Colliers Pratt McGarry pegs the Class A vacancy rate at 9.2 per cent, Class B at 5.2 per cent and Class C at 9.7 per cent.
Johnson said he's not sure why there would be such a difference between his numbers and Colliers' numbers.
murray.mcneill@freepress.mb.ca
Office-space stats
Here are some of the numbers from Wayne Johnson's most recent market report:
* 17 million -- the number of square feet of rentable office space (downtown and suburban) covered in the report.
* 5.9 per cent -- the overall office vacancy rate for the city at the end of the year.
* 5.8 per cent -- the overall vacancy rate for Class A, B and C office space in downtown Winnipeg at the end of last year.
* 5.7 per cent -- the vacancy rate in downtown Class A office space at the end of the year.
* 7.4 per cent -- the vacancy rate in downtown Class B office space at the end of 2007.
* 1.7 per cent -- the year-end vacancy rate in downtown Class C space.
* 131,208 -- the number of square feet of downtown office space leased in 2007.
Here are some of the numbers from Colliers Pratt McGarry's latest office market report:
* 13 million -- The number of square feet of office space (downtown and suburban) covered in the report.
* 6.8 per cent -- the overall office vacancy rate at the end of 2007.
* 7.3 per cent -- the overall downtown office vacancy rate at the end of last year.
* 9.2 per cent -- the Class A vacancy rate at the end of 2007.
* 5.2 per cent -- the Class B vacancy rate at the end of the year.
* 9.7 per cent -- the Class C vacancy rate at the end of 2007.
* 94,000 square feet -- the net amount of office space absorbed by the market in 2007.
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