Quote:
Originally Posted by WpG_GuY
City's real estate 'not about home runs'
Staid market is attractive to some investors, but hard to break into
Martin Cash By: Martin Cash
Posted: 05/31/2018 4:00 AM
At what might have been the largest real estate conference ever held in Winnipeg on Wednesday, there was a lot of discussion about technical considerations for investment strategies related to macroeconomic trends, the high cost of construction and uncertainties about headwinds facing the retail sector.
But mostly, investors and developers from Toronto and Vancouver who were in attendance at the Winnipeg Real Estate Forum heard about the well-paced and organized — albeit modest — market that exists in here.
PHIL HOSSACK / WINNIPEG FREE PRESS FILES</p><p>True North Square, the first multi-tenant downtown office building to be built in the city in more than 30 years, is about 50 per cent leased with a little more than a month left before occupancy.</p>
PHIL HOSSACK / WINNIPEG FREE PRESS FILES
True North Square, the first multi-tenant downtown office building to be built in the city in more than 30 years, is about 50 per cent leased with a little more than a month left before occupancy.
One of the speakers made the remark that Winnipeg’s multi-family market is under-demolished rather than overbuilt.
There are modest price increases, but there is no housing bubble anywhere in sight. And the market remains small enough that one new downtown office tower — True North Square — is causing a major ripple effect in the office market.
But the most intense activity for investors and developers across all types of real estate is not office or multi-family or retail developments — it’s industrial.
Welcome to Winnipeg.
But the strong presence of investors from across the country — about one-third of the 700 in attendance at the conference were from out of town — made it clear that they would like to participate more actively in that kind of boring, predictable marketplace where huge risks do not have to be taken to be able to get proper returns on investment.
With apartment vacancy rates at 2.8 per cent and industrial property vacancy rates at three per cent, you would think there would be plenty of opportunities for investors. Vacancy rates are dangerously low, one such investor said — so low they may be impeding growth.
But Don White, a veteran commercial property broker in Winnipeg with Colliers International, said, "The worst thing that could happen in Winnipeg is for someone to come in and build 5,000 apartment units and three million square feet of industrial space."
That’s because the city rate of growth would not be able to handle it.
(Most investors and developers in attendance were reluctant to comment on the fate of the proposed 40-storey SkyCity project. But one senior executive in the know said unequivocally, "It’s done.")
"Winnipeg is about singles and doubles. It’s not about home runs," said Ugo Bizzarri, a senior executive with Timbercreek Asset Management, the Toronto firm currently in the process of converting the old Medical Arts Building into 100-plus apartment units.
That’s relative to other markets, such as Calgary, for instance.
Brian Bastable, the chief operating officer of multibillion-dollar fund Slate Asset Management LP, said his firm just acquired a portfolio of office properties in Calgary.
Obviously he is hopeful about that investment, but he said, "We have lots of leasing to do. It’s scary and dangerous."
The real estate forum, which is held every two years, is an opportunity to highlight the attractiveness of the Winnipeg market.
But this is not 1995. The particulars about the Winnipeg real estate market are well known. The market matured and has well-defined dynamism and undeniable growth opportunities, but it remains hard to break into. And it’s not because everything is too expensive or because there are unique roadblocks to trading in this market.
The local investment community has things pretty much sewn up.
Speakers said whenever a quality property from any investment class comes on the market, there is always plenty of demand and investors line up to get in on the deal.
Blair Forster, president of the Regina-based Forster Projects and co-developer of the 117-acre Seasons retail/residential/office/hotel development whose centrepiece is Outlet Collection Winnipeg, is keen on the Winnipeg market.
But he said he has a hard time finding other opportunities here, even though institutional investors have long treated Winnipeg as a flyover market.
"Level of sophistication among local investors... they take over and transactions occur before properties even hit the market," Forster said.
That being the case, it is not surprising that the local True North folks with partners James Richardson & Sons are responsible for the first new multi-tenant downtown office building in the city in more than 30 years — a building that is about 50 per cent leased a little more than a month away from occupancy.
And while it is causing some vacancies and musical chairs among the other class A office buildings, it is also causing landlords to work on their properties to retain and attract new tenants.
"It’s forcing everyone to up their game," said Ryan Munt, an office leasing agent at Cushman & Wakefield/Stevenson. "It’s a great time to be in the office market in Winnipeg."
martin.cash@freepress.mb.ca
Read more by Martin Cash
https://www.winnipegfreepress.com/bu...484133263.html
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1. While Winnipeg is modest, there are some projects generating good returns that any city would be proud of. These are not the norm, but it's worth noting. However, you only find out about those if you're here... Toronto/Vancouver investors don't hear about this from afar..... which lends to the point:
The existing investor market has it locked up, and there is not enough demand to outpace investors who are paying attention and striking.
2. Good point about being "under-demolished". This is what has kept quality supply lower, and helped keep prices and rents a touch too low. As such, as material and construction costs climb, it makes it harder for new product to compete in a market where people haven't demontrated a willingess to spend market rates in line with affordability indices. This has also potentially aided and abetted the wrong idea that "condo = good" and "apartment = not as good", as new product has tended to be condo, leading to it's overbuilding. Apartment isn't overbuilt, but this tendency has led developers/owners to try and see how much money they can make by investing how little, rather than building higher quality/use product.
That's all changing now, but it's taken a long time.
3. Low Vancancy rates are not impeding growth. That doesn't happen. However Don White is right, we can't overwhelm the strong market because our sweet spot for ideal supply and demand is small. Downtown has a descent number of units coming, so does Southwest Winnipeg, as well as any area trying to rush work forward before development fees kick in hard. This might be just the right amount of supply, with a bit of breathing room for more.
4. "it's not too expensive"... that's very misleading and poorly worded. It's not too expensive to buy a house, but investors don't buy just a building they buy a return. They also buy as large or as small a portion of a project as they want, and can easily do that anywhere in Canada.
Market values are favourable but construction costs are high, so returns are, as per our reputation, usually stable, if unremarkable (with some exceptions). If they're suggesting that construction isn't too expensive, or that the fact that it's expensive isn't a deterring factor is either wrong or misleading. I've talked to a couple national builders and developers and they all say the same thing. It's more expensive here. These absolutely are factors preventing investment. However, as mentioned, there are some big opportunities, but the locals in the know are fast, as Forster was quoted saying.
5. TNS is doing an awesome job pressuring the market. Artis has been improving their stock since well before TNS was announced, but obviously have their biggest ideas planned right now. Hardvard is making 201 great again. Kinda. Because Artis is hiking rates up and with TNS is driving the market... Harvard is still undermining growth by undercharging. TNS can't do this because they have partners. Artis can't do this because they have shareholders. Harvard, well, it's all their money so they can do what they want.
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True North Square changes Winnipeg office market
Joel Schlesinger | Property Biz Canada | 2018-05-31
True North Square is a historic development in Winnipeg in many ways. It’s not just its scope: several hundred thousand square feet of office, retail and residential space, along with a massive public plaza to host future fan “Whiteouts” for Winnipeg Jets Stanley Cup playoff runs.
Image of downtown Winnipeg, where the office market is about to be transformed by the True North Square development.
It also marks the first, market-based class-A office tower constructed in the city in decades, said Katie Hall Hursh, senior director of business development at True North Real Estate Development.
“It’s pretty incredible to think that there has not been a new, speculative office tower in the City of Winnipeg in over 30 years,” Hall Hursh said of the $400-million, mixed-used development adjacent to Bell MTS Place, home to the Jets and some of the city’s largest entertainment events.
Speaking at Wednesday’s Winnipeg Real Estate Forum at the city’s newly redeveloped RBC Convention Centre (also adjacent to the project), Hall Hursh said True North Square has generated excitement and interest among Winnipeg and even outside businesses looking to relocate to its flagship 365,000-square-foot office tower.
The first of four skyscrapers to be completed on the site, the 17-storey Scotiabank Tower, is more than 50 per cent leased and expected to open officially this summer.
New space, new challenges for building owners
Yet the addition of new, high-quality office space has also created challenges for the city’s existing owners of office space, according to developers and brokers on a panel focused on Winnipeg’s office real estate market.
While the city’s office market has remained relatively stable — with vacancy rates between 6.5 and eight per cent during the past eight years — it “is typically classified as musical chairs with tenants moving between buildings,” says Ryan Munt, a sales and leasing associate with Cushman & Wakefield Winnipeg, who moderated the discussion. (By comparison, downtown Toronto’s office vacancy rate was 2.6 per cent at the end of 2017, an Avison Young report stated.)
The addition of the True North Square project has increased the velocity of this trend in the last two years, he noted, putting pressure on all existing office properties. In particular, class-B and -C owners will need to offer more to keep tenants and attract new ones to maintain occupancy rates — though class-C vacancy rates are the lowest of the three for the first quarter of 2018 at 5.9 per cent.
“Landlords with existing buildings are going to have to start reinvesting into what they can control,” to compete, said Chris Vodrey, director of leasing for Manitoba and Saskatchewan for Morguard Investments Ltd. (MRC-T).
“People need a vision . . .”
To that end, they must upgrade existing office space with value-added amenities like showers and gym facilities, enhanced safety and security, food and drink amenities and parking.
“If you want tenants, you have to move more aggressively than before.”
Among those seeking to do more is local landowner Carmyn Aleshka, president of Winnipeg-based Paradigm Insurance Inc, who purchased 200 Portage — the former Scotiabank office tower — for $16 million last year.
“People need a vision built for them,” said Aleshka. Otherwise, “they don’t necessarily see what a building could be.”
All too often, potential tenants look at older buildings through the lens of the role these properties once served.
“Having a past government tenant in there for the last 20 years, people just brush it off and aren’t really willing to have a look at it,” Aleshka said.
Open concept layouts, more daylight
To be successful, existing owners need to create new paradigms for offices that are exciting, particularly to tech companies sprouting up in the city.
Think “the Google model for office space, encouraging their employees to be able to have fun and create camaraderie,” she added.
More broadly, tenants want open-concept layouts, with plenty of daylight and a preference for glazing over drywall and cubicles, said Brad Goerzen, senior vice-president of leasing for the central region at Artis REIT (AX-UN-T).
He cited the efforts of the real estate investment trust, headquartered in downtown Winnipeg, to improve its existing properties. These include a $25-million upgrade at 360 Main Street at Portage and Main — historically the most important nexus of office space in the city.
He noted the True North development and the loss of Great-West Life — an anchor tenant at its 220 Portage Avenue tower — have had “a disruptive effect” on its portfolio of nine downtown office buildings totalling more than 1.5 million square feet.
True North Square creates tenants’ market
“There has been a tremendous amount of work just to remain status quo in the market,” he said. Artis’ office vacancy rate is 10.5 per cent today, slightly higher than 10 per cent in 2016 — around the time plans for True North Square were officially unveiled.
Going forward, all the panel experts forecast the office market will likely favour tenants for at least the next two years.
Still, landlords and developers have reason to be optimistic. Winnipeg has a burgeoning technology sector, bolstered by the recent announcement one of the world’s leading video game-makers, Ubisoft, will open an office in the Manitoba capital, investing $35 million and creating about 100 jobs.
Existing office space owners will need to look more and more to growing sectors like tech — with their younger workforces — to sop up excess supply left by the trend of more mature businesses downsizing their physical footprints, Aleshka said.
A property must “stand out — especially with millennials who want an office space where they can have fun.”
That said, more downtown residential is also needed.
“Right now, our downtown doesn’t have a critical mass of people after nine to five,” she said, adding True North Square’s 130-residential-unit tower, expected to open in 2020, will help create a bustling after-work-hours atmosphere found in many other major North American city centres.
Additionally, Artis is developing a 40-storey mixed use tower near Portage and Main which will add more than 300 residential suites to the area.
“That’s what’s ultimately going to create growth and attract more people to our downtown,” Aleshka said.
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1. Great news on improvement pressure and class C vacancy. TNS is what the market needs but the market needs to respond.
2. 16M is a huge chunk of money for that property. While Forums obviously sometimes only skim over ideas rather than diving deep, the verdict isn't in on the google model floor plan either. Some love it, some hate it... but when major players perpetuate the trend and, well, own the internet, not everyone hears all sides of the story.
3. Artis screwed up big by losing GWL, that's for sure. However, their vancancy rate, I think, is a little misleading. They're doing tonnnnsss of work on 360 for incoming tenants. So that number will shrink.
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