Vacancy rates low as demand rises
February 1, 2010
Winnipeg Free Press
Written by: Murray McNeill
But experts don't see big lease rate hikes
The city's industrial vacancy rate is at an 11-year low, according to one industry official, and the demand for space is escalating.
In most markets, that would likely lead to a surge in new construction and a spike in lease rates. But not in Winnipeg, according to local forecasters.
Wayne Johnson, who publishes a twice-yearly report on commercial sales and leasing in Winnipeg (The Johnson Report), and the president of Colliers Pratt McGarry, which recently issued its 2009 year-end industrial market report, both predict only a modest increase in new construction and lease rates in 2010.
Wayne Pratt said the high cost of new construction will discourage developers from adding a lot of new space in 2010. He said developers need to charge about $10 a square foot to cover their construction costs and most tenants aren't prepared to pay that when the average lease rate in the city is hovering around $5.25.
And without a bunch of new space, there's no reason for a big jump in lease rates, he and Johnson said.
Pratt wouldn't predict how much rates are likely to increase this year, saying only, "It's not going to be a dramatic rise." Johnson, who is a commercial and leasing specialist with Royal LePage Dynamic Real Estate, said he wouldn't be surprised to see rates climb by five per cent, which would be similar to last year's increase.
But even a five per cent hike would seem vibrant compared to what's been happening in the city's sluggish office market, where Class A rates have remained relatively unchanged for the last 20 years. And as reported here last week, they aren't expected to change much this year, either.
In his 2009 year-end report, Johnson pegs the average industrial rate at $5.42 per square foot. So a five per cent increase would bump it up to about $5.70.
While Johnson's and Colliers' lease-rate numbers may differ slightly, Johnson, Pratt and Colliers' industrial sales and leasing agent, Tom Derrett, all agree the demand for industrial space is picking up as the global economy emerges from last year's recession.
Derrett said demand began to rebound last fall, after companies here and elsewhere realized the recession wasn't having a big impact in Manitoba.
"I would say that a lot of companies... were waiting for the other shoe to drop. But I think they (eventually) realized that in Manitoba, the other shoe wasn't going to drop. So we started to see activity pick up in September or October, and it really hasn't let up since then."
He said Colliers is talking to a number of prospective tenants for a new 64,690-square-foot industrial complex that opened last year at 801 Century St. The complex was built by ING Real Estate Services, but later acquired by the Winnipeg-based Artis Real Estate Investment Trust.
Although it's zoned industrial, Derrett said the complex is turning out to be more of a mixed-use building. Now 45 per cent leased, the occupants include an office tenant (Manitoba Public Insurance) and a retail tenant (Mattress Genie).
"We're getting all kinds of inquiries for all kinds of uses."
He and Pratt said the demand for industrial space is coming from both expansion-minded local companies and out-of-province firms interested in entering the Manitoba market.
They said they couldn't disclose any names at this point.
While Manitoba weathered the recession better than most North American jurisdictions, Pratt said that doesn't mean it was unscathed. There were some recession-battered U.S.-based companies in both the office and industrial markets that downsized their operations here in 2009.
"We're a bit shocked that it didn't get worse (than it did)," he said. "It (the industrial market) has been decimated in many parts of the United States."
Pratt and Johnson have different views on what's likely to happen with industrial vacancy rates this year -- and even what those rates are at the moment.
Johnson said even if there isn't a lot of it, the addition of some new space this year could be enough to nudge the vacancy rate up by a half a percentage point to 2.5 per cent by the end of the year.
But Pratt said he thinks the increased demand will push it a little lower. Colliers pegs the average vacancy rate at 3.77 per cent at the moment after rising by half a percentage point in 2009.
Johnson said there could be a number of possible reasons for the discrepancy in vacancy-rate numbers. He said Colliers may include derelict buildings or buildings that have been temporarily removed from the market in its industrial data base, while he excludes them.
murray.mcneill@freepress.mb.ca
Some more numbers
HERE are more facts and figures about Winnipeg's industrial real estate market:
- Industrial is by far the largest segment of the local commercial real estate market, with about 79 million square feet of space. (Johnson says office has about 17.5 million square feet and retail about 18.7 million.)
- About 67 per cent, or 53 million square feet, of that industrial space is owner occupied.
About 30 million square feet of that 53 million is used for manufacturing, 20 million is warehouse space and three million is "service-type" space. - The 25.5 million square feet of investment property space is used mainly for warehousing and distribution.
Source: The Johnson Report
Republished from the Winnipeg Free Press print edition February 1, 2010 B6 |
