Industrial space snapped up

August 4, 2009
Winnipeg Free Press
Written by: Murray McNeill

Economic slump fails to dampen demand for new developments

The economic downturn hasn't dampened the demand for industrial space in Winnipeg, commercial real estate agents say.

Spokesmen for two new multi-tenant industrial complexes that have come onto the market since late last year say there's still plenty of interest from prospective tenants.

Martin McGarry, president of DTZ Barnicke Winnipeg, said a new 45,000-square-foot industrial complex that A&S Homes completed last March on Lorimer Crescent in Fort Garry is 50 per cent leased and should be fully leased by the end of this year.

The same goes for a 64,690-square-foot complex ING Real Estate Canada completed last November at 801 Century St.

"Nothing is finalized, but we're quite close on two separate 20,000-to-30,000-square-foot tenancies," leasing manager Ken Zacharias said in an interview. "I am hoping to have the whole building committed by the end of the year, and I think that's a realistic hope."

Zacharias said he initially thought it would be smaller tenants that would be interested in the 801 Century Plaza building, and that it would take seven or eight of them to fill it. But most of the interest has come from medium-sized firms, which is a pleasant surprise, he added.

McGarry said it usually takes about a year to fill new industrial buildings of that size in Winnipeg, so the economic slowdown has been a non-issue so far with both new developments.

He and Zacharias attributed that to the diversity of the Manitoba economy, which has enabled it to weather the economic downturn better than most other areas of the country.

Last week, one of the country's leading economic forecasters -- the Conference Board of Canada -- predicted Manitoba will be one of only four provinces to avoid a recession this year, with projected growth of 0.8 per cent. It also cited the diversity of the local economy, coupled with an ongoing construction boom.

Another reason for the strong demand for leased space is a limited supply of new and existing industrial buildings for sale right now in Winnipeg.

"Developers are having a hell of a time getting financing to build new product," McGarry said, and the ongoing high cost of new construction also has been a deterrent.

He and Wayne Johnson, a commercial agent with Royal LePage Dynamic Real Estate, said there are usually about 50 existing industrial properties for sale at any given time in Winnipeg. And at the moment, there are only about 10.

"I have never seen it this low," McGarry said. "We need more product."

Because there are so few buildings for sale, McGarry said companies that would rather buy are being forced to lease instead. It's one of the reasons why the overall industrial vacancy rate remains so low.

Johnson recently pegged the overall vacancy rate at a scant 2.6 per cent.

"Two point five or 2.6 per cent is a good number," Johnson said. "Most marketplaces would love to have that kind of number, even in good times."

McGarry said Winnipeg's vacancy rate is likely the lowest of any major city in Canada.

"It's still unbelievably low," he said, adding he also expects it fall back down to around 2.3 per cent by the end of the year as the economy starts to rebound and the demand for industrial space intensifies even more.

Despite the tight market conditions and healthy demand for space, McGarry said industrial rental rates have remained fairly stable over the last couple of years after increasing substantially between 2002 and 2006.

murray.mcneill@freepress.mb.ca

Vacancy rate just 2.6%

Here's the lowdown on Winnipeg's industrial real estate market: 

Total inventory of industrial space: 78 million sq. ft.

Amount of owner-occupied space: 53 million sq. ft., or 68 per cent of the total inventory.

Amount of investor-owned (for lease) space: 25 million sq. ft., or 32 per cent.

Overall vacancy rate: 2.6 per cent as of June of this year.

Vacancy rate at the start of the year: 2.5 per cent.

Number of years where vacancy rate has been below four per cent: 11 of the last 12.

Number of times it's been below three per cent: three (2001, 2008 and 2009).

Area of with highest concentration of industrial space: St. James, at 18 million sq. ft.

-- Source: The Johnson Report

Republished from the Winnipeg Free Press print edition August 4, 2009 B6