Industrial-space spurt looms

April 14, 2008
Winnipeg Free Press
Written by: Murray McNeill

Demand set to surpass supply; firms will need to build anew

Winnipeg's industrial sector could experience a bit of a growth spurt this year as a dwindling supply of existing space forces companies to build or lease new facilities, industry officials say.

At least two -- Wayne Pratt, president of Colliers Pratt McGarry and Martin McGarry, president of DTZ Barnicke Winnipeg Ltd. -- said there could be as much as 500,000 square feet of new industrial space built in the city in 2008.

"It won't be like the old days," Pratt said. "There was a time in the '90s when we were adding over one million square feet of new product a year for two or three consecutive years. But to say there could be half a million square feet (this year) -- I think that's a reasonable number."

He said it's been at least five years since Winnipeg has seen that much new industrial space built in a single year. Last year the tally was about 300,000 square feet.

New construction activity has been stymied in recent years by a shortage of serviced industrial lots in some areas of the city and skyrocketing construction costs. The latter forced some companies to rethink their construction plans. A prime example is Sobeys' recent decision to mothball plans to build a new distribution centre near Headingley, the cost of which proved too high.

Another problem is that higher construction costs mean higher rents for space in new buildings, and many prospective tenants are balking at paying the higher rates, according to McGarry and Michael Falk, development manager for one of the most active industrial developers in the city -- Terracon Development Ltd.

"They've been living in a $4.25 (per square foot) world for so long, the sticker shock causes everybody to re-analyse everything," Falk said. "That's despite the fact they're paying that much and more in places like Calgary and even Saskatoon."

With construction costs expected to remain high, McGarry said tenants will have to get used to the higher rates, which are now running at between $8 and $10 per square foot. Especially with the supply of vacant space in existing buildings quickly dwindling.

"Sooner or later we're going to get to that critical point where people will have to build," McGarry said. "I think by the end of '08, our inventory (of existing space) is going to be completely depleted."

Pratt agreed firms may soon have no option but to go with new space.

Colliers pegged the overall industrial vacancy rate in Winnipeg at 4.3 per cent at the end of 2007, and Pratt said it's expected to drop below four per cent in 2008.

"Any time you go below four per cent you're going to be needing some new buildings constructed."

Others, like Avison Young and Wayne Johnson, a commercial and leasing representative with Royal LePage Dynamic Real Estate, put the overall vacancy rate at closer to 3.1 per cent.

In the company's 2008 market forecast, Catherine Stoyko, marketing and research co-ordinator for Avison Young Commercial Real Estate (Manitoba) Inc., predicts at least 200,000 square feet of new industrial space will be built in the city this year.

Stoyko admitted in an interview that's probably a conservative estimate. But 500,000 square feet sounds overly optimistic, she said.

"I know high construction costs have been thwarting a lot of projects lately," she said, and she suspects that will continue to be the case in 2008.

Colliers is involved in two new industrial projects that are proceeding this year. One is a new 30,000-square-foot, single-tenant, office/warehouse facility an Edmonton developer is building at the corner of Inkster and Inksbrook boulevards in northwest Winnipeg. It will be leased to Waterous Power Systems, and should be ready for occupancy in July, Pratt said.

The other is a 74,200-square-foot office/warehouse complex a Calgary developer is building on DeBaets Street in the St. Boniface Industrial Park. One tenant has already leased 22,450 square feet of the space, but the rest is still up for grabs.

DTZ Barnicke and A&S Homes also have a project underway. It's the first phase of the multi-phase, Sterling Lyon Business Park development that will be built on Lorimer Boulevard in southwest Winnipeg.

Phase one involves the construction of a 45,000-square-foot, office/warehouse building, and McGarry said there'll likely be at least five phases over the next five to seven years.

ING Real Estate is also beginning construction this spring on a new 64,513-square-foot, multi-tenant, industrial complex at 801 Century St. Neil Ferris, the company's director of investments, said the project should be completed in October.

In addition to the ones that are a definite go, a number of other projects remain tentative because leasing deals haven't yet been finalized.

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

Here is a list of some of the new industrial projects either confirmed or tentatively planned for this year. In brackets is the name of the commercial estate firm or developer involved in the project:

Confirmed:

• 30,000 square foot, single-tenant, office/warehouse building at the corner of Inkster and Inksbrook boulevards. Tenant will be Waterous Power Systems. Construction underway, to be completed in July. (Colliers Pratt McGarry).
• DeBaets Street, St. Boniface Industrial Park. 74,200 square foot, multi-tenant office/warehouse building. 22,450 square feet already leased, remainder still outstanding. Construction to start in mid to late May, with September completion. (Colliers Pratt McGarry).
• 45,000 square foot, multi-tenant, office/warehouse building on Lorimer Boulevard off Sterling Lyon Way. 16,000 square feet to be occupied by developer -- A S Homes -- remainder to be leased out. Construction getting underway, to be completed by September. (DTZ Barnicke Winnipeg).
• 64,513 square foot, multi-tenant, industrial/showroom facility, at 801 Century St. Construction to begin late-April or early-May, to be completed in October.

Tentative:

• Two 45,000 square foot , multi-tenant, industrial showroom/warehouse buildings, one in Tuxedo Business Park on Kenaston Boulevard and one in Terracon Business Park off Dugald Rd. Hope to begin construction this year and complete both in 2009. (Terracon Development Ltd.)
• One 100,000 square foot, multi-tenant industrial building in either St. Boniface Industrial Park of Inksbrook Industrial Park. Hope to begin construction later this year and complete in 2009. (Bentall Real Estate Services).
• Up to 80,000 square foot, multi-tenant, industrial showroom/warehouse facility, 1450 Waverley St. Hope to begin construction this fall and complete in 2009. (Morguard Investments Ltd.).
• One 80,000 square foot, multi-tenant, industrial-condo complex on the corner of Inkster and Brookside Boulevards. Hope to begin construction late this summer, and to complete in 2009. (Shindico Realty).
• One 40,000 square foot, single-tenant building at 2600 McGillivray Blvd., in the Rural Municipality of McDonald. Vitran Transfer to be the tenant. Construction to start in late summer or fall, and to be completed in 2009. (Shindico Realty).

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