Office leasing expected to hit ten-year high

July 28, 2008
Winnipeg Free Press
Written by: Murray McNeill

Healthy local economy fuels upswing

This is shaping up as the busiest year in more than a decade for office leasing activity in Winnipeg, according to the latest market report from Colliers Pratt McGarry.

In its newly-released mid-year office market report, the Winnipeg commercial real estate firm said 233,000 square feet of office space was leased in the city during the first half of this year.

That net gain reduced the city's overall office vacancy rate to 5.8 per cent from 6.8 per cent at the end of 2007, it added.

"It was a surprisingly good half," Colliers Pratt McGarry president Wayne Pratt said in an interview.

And while he expects the growth rate to slow a little in the second half of the year, Pratt said the office market should still finish the year with between 300,000 and 350,000 square feet of positive absorption.

That would be the highest yearly total since 1997, when 541,000 square feet was absorbed, he said. It would also be a refreshing change from the previous four years, when office leasing activity remained stubbornly sluggish despite a surge in rental activity in both the retail and industrial sectors.

Pratt said the demand for office space began to pick up around the middle of last year, and continued to escalate through the first half of 2008.

He and Chris Cleverley, an office leasing and sales specialist with Colliers Pratt McGarry, said the healthy state of the local economy had a lot to do with the upswing in activity.

"It's still a good, solid, (economic) performance here," Pratt said.

"And that translates into more leasing activity," Cleverley added.

In its market report, Colliers notes the Manitoba economy is forecast to grow by 2.7 per cent this year. That would be well above the projected national average growth rate of 1.7 per cent.

Pratt said the spike in leasing activity may also be partly due to some tenants grabbing space now, while the selection is still good. Once vacancy rates fall below five per cent, the choice becomes more limited, which can also put upward pressure on rental rates.

"So now is a good time to get it," he said. "It's still affordable."

The Colliers report said the vacancy rate improved in all three categories of downtown office space. The Class A rate dipped to 9.0 per cent in June from 9.2 per cent at the end of 2007. The Class B rate fell to 4.1 per cent from 5.2 per cent, while the Class C rate dropped to 8.6 per cent from 9.7 per cent.

Pratt said the demand for office space has been coming from both the private and public sectors. Among the tenants who leased space in the first half of the year were Meyers Norris Penny, which rented 40,000 square feet in Canwest Place; Manitoba Public Insurance and the City of Winnipeg, which took 40,000 square feet and 12,000 square feet respectively in the Cityplace office tower; the Manitoba Labour Board, which leased 10,000 square feet at 175 Hargrave St., and the Winnipeg Civic Employee's Benefit Plan, which grabbed the top floor (16,000 square feet) of the Credit Union Central of Manitoba building at 317 Donald St.

Cleverley said the 317 Donald St. deal was one of the most notable transactions Colliers handled during the first half because the space had been vacant for some time and the firm was able to fill it with a single tenant.

"To find a user of that size (16,000 square feet) to take a full floor -- those deals just don't happen every day in Winnipeg," he said. "So that was a real success story."

Cleverley said Meyers Norris Penny's decision to move from an office building at 1661 Portage Ave. to the Canwest tower at Portage and Main was also a nice coup for the downtown.

Wayne Johnson, a commercial and leasing agent with Royal LePage Dynamic Real Estate who also releases a twice yearly report on commercial vacancy rates, agreed it's been a good year for office leasing activity in Winnipeg.

In his mid-year report, Johnson painted an even rosier picture of the market. He pegged the city's overall vacancy rate at 4.5 per cent and the vacancy rates for downtown space at 5.0 per cent for Class A space, 4.0 per cent for Class B, and 1.7 per cent for Class C.

He said one of the main reasons for the discrepancy between his numbers and Colliers numbers are that he doesn't include sublease space in his market survey, while Colliers does. Also, Colliers includes many of the older, lower-cost buildings under a single category -- Class C -- while he divides them into Class C and Class D buildings.

But he agreed with Colliers that total market absorption this year should top the 300,000-square-foot mark.

murray.mcneill@freepress.mb.ca

Colliers report highlights

Here are the highlights from Colliers Pratt McGarry's mid-year Winnipeg office market report:

• Overall office vacancy rate: Dropped to 5.8 per cent from 6.8 per cent at the end of 2007.
• Class A vacancy rate (downtown): Dipped to 9.0 per cent from 9.2 per cent.
• Class B rate (downtown): Fell to 4.1 per cent from 5.2 per cent.
• Class C rate (downtown): Dropped to 8.6 per cent from 9.7 per cent.
• Square footage of space leased in the first half of year: 233,000
• Projected leasing total for entire year: 300,000 to 350,000 square feet.
• Amount of new space that came onto the market in the first half: about 100,000 square feet.
• Amount of new space forecast to be added in the second half: about 100,000 square feet.
• New-deal, net effective rental rates at mid-year: Class A: $8 to $9; Class B: $7 to $9; Class C: $4 to $5.

-- Source: Colliers Pratt McGarry

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