Winnipeg Market Report Commercial Land Values Continue to Rise By Aaron DeGroot, Stevenson Advisors Winnipeg has long been known for its stable commercial real estate market. In times of national or international economic turbulence, it is the Winnipeg market that has acted as somewhat of a safe-haven to investors. There are many factors contributing to this local stability; including a diverse economic base, size of the market, steady population growth and public investment. In its most raw sense, commercial real estate can be stripped down to one common denominator; land. There are a number of measurements that can be used to track the health of the market in any given real estate sector (cap rates, lease rates, internal rates of return etc.), but most relatable and easiest metric to understand is that of the underlying land value. Commercial land values in Winnipeg have mirrored the health of the overall commercial real estate market over the past decade. In Q3 2016, new benchmarks were set in both the average price per acre of commercially zoned land as well as the average price per acre of industrially zoned land. The average price per acre of commercially zoned land located on a commercial corridor surpassed the $1 million/acre threshold in 2014, and in 2016, the $1.2 million/acre threshold was surpassed. Commercial corridor land values have increased by 50.0 percent since 2012, with the most significant rate of increase experienced over the past two years. Values appear to have stabilized in 2016 (YTD) at these new benchmark levels. Contributing significantly to these record land values are the recent transactions that have occurred in the Seasons of Tuxedo regional cluster. The ongoing development of these lands at the northwest corner of Kenaston Boulevard and Sterling Lyon Parkway has led to some of the highest per acre commercial land transactions in the history of the city. Three transactions in particular ranging from $1.05 million/acre to $1.30 million/ acre have set the market within this cluster. The Seasons of Tuxedo area will continue to be an area of great interest over the next few years as the Outlet Collection of Winnipeg nears completion and is set to open in 2017. As this area continues to develop as Winnipeg s new premier retail cluster, it will continue to heavily influence commercial land values in the city. Stevenson Advisors will continue to monitor value trends within the area and the market at large.
Increasing Trend Multi - Family Winnipeg s overall apartment vacancy rate held steady at 3.0% during Q3 2016 and is projected to rise to 3.2% in 2017 (Canada Mortgage and Housing Corporation). A surge in first time home buyers and an influx of new rental units are major reasons for this projected increase. Apartment building sales picked up significantly during the third quarter of 2016 with nine apartment buildings selling for at least $1 million from July 2016 to September 2016 (through Manitoba Land Titles). The average sale price per suite for all apartment buildings sold over $500,000 during the first three quarters of 2016 was $84,276.28. Decreasing Trend Stable During the first nine months of 2016, single-family housing starts in the Winnipeg Census Metropolitan Area were up 10 per cent as compared to one year ago (January 2015-September 2015). However, multi-family building starts were down 26% over the same time period (Canada Mortgage and Housing Corporation). Two significant downtown housing projects were announced in Fall 2016; the $17 million redevelopment of the Exchange District s historic James Avenue pumping station into an 84- unit apartment complex and the conversion of the eight-storey Sterling Building at 283 Portage Avenue to rental apartments (50-57 one bedroom units). Office Apartment 3% Average Rent (Two Bedroom) $1,075 per month Winnipeg s overall office vacancy rate was 8.0% in Q3 2016, down from 8.2% in Q2 2016 (Cushman & Wakefield Winnipeg). The CBD (Central Business District) market continues to perform well as the overall vacancy rate fell to 7.8% in Q3 2016 down from 8.1% in Q2 2016. Although the overall CBD vacancy rate is expected to increase in 2017, there is a plenty of optimism surrounding True North Square and SkyCity Winnipeg. Landlords of existing Class A and B buildings announced significant capital projects in 2016 which will put pressure on overall gross rents. Average Multi-Family 5.0% - 5.5% One of these capital projects is the exterior redevelopment of 360 Main Street which is well underway near the intersection of Portage and Main. The project includes a complete renewal of the existing curtain wall and installation of environmental barriers to improve the functionality and efficiency of the building. The redevelopment is expected to be completed in the Fall of 2017. Construction of the nearby 40 storey skyscraper at 300 Main Street will start in April 2017 and is scheduled to be completed sometime in 2019. The $165 million project will feature residential units on the upper floors with retail and office space on the lower levels. Winnipeg Overall Office 8% Class A Downtown $20.00 psf Average Office 6.0% - 7.25% 2
Retail Winnipeg s overall retail vacancy rate is expected to stay at 6% for the rest of 2016 as retail power centres and strip malls continue to feel the effects from last year s national store closures. The commercial retail investment market remains strong in Winnipeg as the city s steadily growing population and stable economy are attracting significant investor interest from across the country. Retail strip malls in desirable neighborhoods in particular are highly sought after because they are low-risk, high return investments. There are a number of retailers looking to grow in the Winnipeg marketplace including Save-On-Foods which recently opened its first three locations at Northgate Shopping Mall, St. James Station and Bridgwater Town Centre. Save-on-Foods will continue to look to increase their presence with the goal of having 12 stores servicing Manitoba. Other retailers such as Tim Hortons are looking to broaden their service network in Winnipeg and surrounding rural markets to take the operational stress off of stores that are performing well. In mid-september, International House of Pancakes (IHOP) confirmed it will open its first franchise in Winnipeg in 2017 at the Seasons of Tuxedo development. The 5,500 square foot restaurant is expected to employ up to 100 people and will seat 200 patrons. A spokesperson for IHOP said they would like to open more locations in the city in the future. Overall Retail 6% Industrial New Construction $32.00 psf Average Retail 5.5% - 6.5% Winnipeg s overall industrial vacancy rate was 3% in Q3 2016 and is expected to remain stable heading into the new year. Average industrial net rents in Winnipeg have been stable for much of 2016 but are expected to rise in 2017 due in part to a lack of supply on the market. From a sales and leasing standpoint, the industrial market has been slow for much of this year but demand is expected to increase. Several major industrial projects remain delayed due to a lack of shovel ready land. The limited supply on the market is affecting both investors and owner-occupiers. It remains a landlord s market in Winnipeg. One of the largest industrial sale transactions in Q3 2016 was the sale of 78 Hutchings Street, a 29,979 square foot single-tenant industrial building which sold in October 2016 for $3,515,000 ($117.25 psf). The Northwest Winnipeg property is on a 1.7 acre site and features a fully renovated office/showroom and production spaces. Brookside Business Parks are nearing completion with more than 220 acres in development by 42 different companies. New industrial parks are being prepared for market, representing more than 600 acres of new economic activity and expected to attract 70 new companies by 2020 (Centreport Canada). Overall Industrial 3% Industrial $7.00 PSF Average Industrial 6.8% - 7.2% 3
Select Q3 2016 Sale Transactions 330 Portage Avenue Property Type: Office Building Area: 153,315 sf Age: 1971 Sale Date: June, 2016 Sale Price: $23,500,000 Sale Price PSF: $153.28 1719 Portage Avenue Property Type: Hotel Building Area: 13,654 sf Age: 1928 Sale Date: August, 2016 Sale Price: $2,155,000 Sale Price Per Suite: $102,619.04 2 Donald Street Property Type: Retail Building Area: 26,504 sf Age: 1958/1993 Sale Date: July, 2016 Sale Price: $3,100,000 Sale Price PSF: $116.96 78 Hutchings Street Property Type: Single-Tenant Industrial Building Area: 29,979 sf Age: 1989 Sale Date: October, 2016 Sale Price: $3,515,000 Sale Price PSF: $117.25 4
Our Team Stevenson Advisors is a full service appraisal firm located in the heart of Downtown Winnipeg on St. Mary Avenue and Garry Street that specializes in valuation, advisory and corporate real estate services. Advisors is a division of Stevenson Real Estate Services, an integrated commercial real estate services firm that was founded in 1901. We work closely with Cushman & Wakefield Winnipeg (brokerage), Stevenson Management (property management) and MMI Asset Management, drawing from a wide collection of current and historic commercial real estate data. Advisors uses this competitive advantage to be a market leader in valuation and advisory services in Winnipeg. Aaron DeGroot Vice President P: 204-934-6435 E: adegroot@stevenson.mb.ca Trevor Smith Director- Property Tax Consulting P: 204-934-6221 E: tsmith@stevenson.mb.ca Kassy Phillips-Hnatyshyn Senior Appraiser P: 204-934-6230 E: kphillips@stevenson.mb.ca Sean O Neil P: 204-934-8905 E: soneil@stevenson.mb.ca Bryce Witherspoon P: 204-934-6238 E: bwitherspoon@stevenson.mb.ca Meghann Marshall P: 204-934-6247 E: mmarshall@stevenson.mb.ca Adam Sawyer P: 204-934-6240 E: asawyer@stevenson.mb.ca Ezra Ginsburg Research and Data Analyst P: 204-934-6200 E: eginsburg@stevenson.mb.ca 5