Retail development slowing

February 11, 2008
Winnipeg Free Press
Written by: Murray McNeill

Subprime crisis, building costs hurting rural power centres

Selkirk Crossing development will take longer than initially planned because of retail slowdown.

THE subprime mortgage crisis in the United States is having a chilling effect on retail development in rural Manitoba, according to a local developer.

Sandy Shindleman, president of Winnipeg-based Shindico Realty Inc., said the mortgage crisis has made it harder for some retailers to obtain mortgage financing, particularly U.S.-based firms.

That's caused them to postpone expansion projects in Manitoba until financing can be obtained, which is delaying the completion of some retail developments.

Shindico is developing retail power centres in three rural Manitoba communities -- Selkirk, Portage la Prairie and Winkler -- and Shindleman said all three are taking longer to complete than was originally anticipated.

Shindico had expected to have all three power centres fully developed by the fall of this year. Now it looks as if it will be early next year for the Selkirk one and the middle of next year for the Portage and Winkler developments.

Shindleman said the delays aren't threatening to torpedo the developments. Shindico officials are working around them and continue to attract other tenants.

"It just takes longer, but it has not been frustrating yet."

Subprime mortgages are loans issued to homebuyers with questionable credit. When U.S. interest rates began to climb and house prices began to fall last year, many high-risk borrowers were left with mortgages worth more than their homes, or were having to renew their mortgages at substantially higher rates. So many of them simply walked away from their homes, leaving finance companies on the hook.

Unwilling to take on more risk, many lenders began tightening up their lending rules, approving fewer loans and charging higher lending rates in some cases.

A spokesman for the Winnipeg office of Cushman & Wakefield LePage Brokerage Services, which is marketing the Kenaston Common retail power centre in southwest Winnipeg, said he's not surprised to hear the credit crunch is slowing retail development in some smaller, secondary markets in the province.

Ken Yee said risk-wary lenders are likely giving first preference to expansion projects in larger, primary retail markets like Winnipeg, where shopping patterns and market dynamics are well-known and established. They likely view those projects as less risky than ones in smaller, less-established rural markets.

Yee, vice-president and manager of Cushman & Wakefield's Winnipeg office, said the firm hasn't had a problem finding retail tenants for the 450,000-square-foot Kenaston Common power centre, which is nearing completion on the northwest corner of Kenaston and McGillivray boulevards.

"Hopefully we'll have it done by the summertime as far as leasing is concerned."

Shindleman said the credit crunch is just one of the reasons why some rural projects aren't proceeding as quickly as expected. The soaring cost of new construction also has caused some retailers to rethink their expansion plans and to delay projects.

"It's definitely slowing down the growth... because you have to make the financials work and it becomes difficult," he said.

A case in point is Sobeys' recent decision to mothball plans to build a new $40-million distribution centre near Headingley because the contractors' bids came in substantially higher than budgeted.

Shindleman said corporate restructuring is also causing delays in some cases.

He said that appears to be the main reason why Real Canadian Superstore has delayed construction of a new big-box store in Shindico's Selkirk Crossing retail power centre in Selkirk.

But he noted the grocery retailer has already purchased the land and had it serviced and paved. So he assumes the project will proceed at some point.

"It's going to get built. The question is will it get built as fast as I would like it to get built. Probably not."

A spokesman for Superstore's parent company, Loblaw Cos. Ltd, declined to comment, saying he was not familiar with the status of the project and the company official who is will be away until Tuesday.

While these challenges are slowing the progress of retail expansion in some communities, Shindleman said they haven't caused retailers to lose interest in these secondary markets.

He said a lot of the prime retail locations in Winnipeg have already been taken, which is why some retailers are expanding into rural retail hubs like Brandon, Portage, Winkler, Steinbach and Selkirk.

"A lot of these centres have a pretty good catchment area," he said. "They're not looking at fifteen or sixteen thousand people, they're looking at 60 or 70 thousand people in their trade area."

He said retailers are finding if they offer a similar level of products and services as they offer in their Winnipeg outlets, rural residents will shop in these rural stores.

The Selkirk Station power centre already boasts 13 retail outlets, including Wal-Mart, Boston Pizza, Dollarama, Reitman's and The Source by Circuit City. Shindleman said at least two other retailers are close to signing deals, and he expects there to be 18 or 19 stores in the centre once it's fully developed, including the Superstore outlet.

Know of any newsworthy or interesting trends or developments in the local office, retail, or industrial real estate sectors? Let real estate reporter Murray McNeill know at the e-mail address below, or at 697-7254.

murray.mcneill@freepress.mb.ca

What they say...

Here is what some commercial Realtors and developers are saying about the impact the U.S. subprime mortgage crisis is having on retail expansion in some rural Manitoba centres:

"The subprime issue affecting the world economy, coupled with the high construction costs, have slowed down the speed of growth for some retailers." -- Sandy Shindleman, president of Shindico Realty Inc.

"Financing may be tougher to come by as far as the secondary markets are concerned." -- Ken Yee, vice-president and manager of the Winnipeg office of Cushman & Wakefield LePage Brokerage Services

"It's happening across the country." -- Shindleman

"There's only so much money to go around so they (lenders) are going to hit what's on the radar first." -- Yee