Trend gives new leases to old spaces
Grain Exchange building virtually full
By: Murray McNeill
Updated: March 10, 2008 at 02:00 AM CDT
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THE vacancy rate in the century-old Grain Exchange Building has plummeted to its lowest level in more than two decades as demand for space in older downtown office buildings shows signs of perking up.
Doug McGregor, vice-president of leasing for Artis Real Estate Investment Trust, which owns the 250,000-square-foot heritage building at 167 Lombard Ave, said Public Works and Government Services Canada has signed a deal to lease the entire third floor, a total of 25,363 square feet.
That leaves only about 7,500 square feet of empty space in the 11-storey structure, McGregor said, and reduces the building's vacancy rate to a mere 2.8 per cent.
"It's been well in excess of 20 years since it (the vacancy rate) has been that low," he said.
Commercial real estate industry officials said the Grain Exchange deal is further evidence that demand for space in downtown Winnipeg's older Class C and D office buildings is growing after years of lacklustre activity.
Colliers Pratt McGarry president Wayne Pratt said it appears Colliers has even found a tenant for a block of downtown Class C space across the street that has been sitting vacant for longer than he cares to remember.
Although the deal is still conditional, Pratt said the tenant -- he wouldn't say who it is -- has agreed to lease the entire second floor of the building at 177 Lombard, the Commerce Building. That's a total of 7,400 sq. ft.
Pratt noted in an interview last month that Winnipeg's downtown office market hasn't enjoyed the same kind of surge in sales and leasing that the retail, industrial and investment-property segments of the market have experienced in recent years.
Colliers is one of several local firms that regularly tracks office vacancy rates in the city. In its latest office market report, it pegged the Class C vacancy rate at 9.7 per cent at the end of 2007. That was up slightly from 9.4 per cent at the start of the year.
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Doug McGregor at renovations for Public Works and Government Services offices. (Joe Bryksa/winnipeg Free Press )
Based on what's been happending over the last few months, Pratt said the Class C vacancy rate should be heading back down.
Colliers classifies most of the older downtown office buildings, including the Grain Exchange Building, as Class C structures. However, Wayne Johnson, a commercial and leasing representative with Royal LePage Dynamic Real Estate, divides them into two categories -- Class C and Class D, with the latter generally being older buildings that are less than 75,000 square feet in size.
Johnson pegged the Class D vacancy rate at eight per cent at the end of 2007. But he said the new Grain Exchange Building deal should reduce that to about 6.2 per cent.
He pegged the Class C vacancy at 1.7 per cent at the end of 2007. He said that's a big improvement from the most recent 10-year high-water mark of 8.6 per cent, set in 1998. Even the Class D rate is down considerably from that segment's 10-year high-water mark of 14.6 per cent set in 2003.
He and Pratt attributed the recent increase in leasing activity to pricing. Colliers said net effective rental rates for Class C space range from $4 to $6 a square foot for new deals. That compares to $7 to $9 for Class B space and $8 to $10 for Class A space.
Johnson said gross monthly rental rates are typically about $20 per square foot for Class C space, $25 or $26 for Class B, and about $30 for space in Class A buildings. And Class D rates tend to be even more affordable -- roughly $15 to $18 a square foot, he said.
Although Class C and D buildings usually offer fewer amenities than Class A or B buildings, Johnson said some companies don't care as long as the rent is more affordable.
He said rental rates for all types of downtown office space have been creeping up in the last couple of years, and he expects that trend to continue in 2008.
Pratt said the Class C buildings that offer upgraded amenities are the ones that will likely do better.
McGregor said the owners of the Grain Exchange Building have spent a substantial amount of money in recent years on building upgrades. For example, they're spending more than a million dollars to install new heating, air conditioning and electrical systems on the third floor in advance of the federal government moving in.
He said the federal government was already leasing space on the building's first, second and seventh floors, and the building's owners are thrilled to have them moving onto the third floor, as well.
He said the space had been on the market since last summer, and several private sector organizations expressed an interest.
"But we weren't able to conclude deals with them. So we were certainly very pleased to see this deal finalized."
Tom Corrigan, a communications officer with PWGSC, said the large floor plate was one of the reasons the government leased the third floor. The fact it already had offices in other parts of the building was another.
"There is the potential for some synergies there," he said. "It was a good fit for us."
The fact Artis REIT was willing to upgrade the space to modern office standards was another plus, he said.
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
The Cs and the Ds
Some facts and figures about the Class C and D office sectors:
Collier Pratt McGarry classifies most of Winnipeg's older downtown office buildings as Class C buildings. However, Wayne Johnson, of Royal LePage Dynamic Real Estate divides them into two groups -- C and D -- with the C's usually being buildings with more than 75,000 square feet and D's being ones with less than 75,000 square feet. The D's also tend to have older heating, air conditioning and electrical systems.
Colliers pegged the vacancy rate for downtown Class C office buildings at 9.7 per cent at the end of 2007. Johnson had the Class C rate at 1.7 per cent and the Class D rate at eight per cent.
Johnson estimates there is 1.2 million square feet of Class C space in downtown Winnipeg, and 1.4 million square feet of Class D space. He said there was 21,296 sq. ft. of vacant Class C space at the end of 2007, and 114,501 sq. ft. of empty Class D space.
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