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The Canadian unemployment rate rose from 5.7% from the fourth quarter of 2017 to 5.8% in in the first quarter of 2018. Manitoba’s unemployment rate is 6.0%.
(Source: Statistics Canada)
The office market trends seen throughout 2017 continued into the first quarter of 2018. Overall vacancy rates remained
relatively stable from last quarter at 6.7%; with the exception of the Class B market which experienced a 90 basis point increase in vacancy as a result of 54,303 square feet (sf) of negative absorption. The primary driver of this was Cargill Corporation downsizing by 41,156 sf at 240 Graham Avenue. Conversely, the asking net rent in this market class increased by $1.05 per square foot (psf) quarter-over-quarter, or the equivalent of a 7%
The pending completion of True North Square in the third quarter of 2018 continues to impact the downtown office market. MNP LLP (formerly Meyers Norris Penny), announced its relocation from its current premises into 53,500 sf located in the new development. MNP LLP’s departure from 201 Portage Avenue in the fourth quarter of 2019, along with Thompson Dorfman Sweatman LLP, TD Bank and TD Wealth Management also vacating the building, will create a large amount of contiguous vacant space. However the leasing of 33,000 sf to Taylor McCaffrey LLP is a positive step in addressing the situation. The overall asking net rent in 2017 was 8% higher compared to 2016, with rents in Class B and C buildings, both in the Central Business District (CBD) and the Suburban market, driving the increase. Asking rates in Class A buildings have not followed suit as these landlords are aggressively competing for new tenants and trying to retain existing ones. Another important element that is involved in the increasing occupancy costs are sizable increases in operating expenses and property taxes. These costs were $0.78 psf higher in 2017 compared to 2016, with the Class A buildings in the CBD generating the largest increase.
The Canadian unemployment rate declined from 6.6% last quarter to 6.2% in Q3 2017. Manitoba’s unemployment rate fell to 5.0% from 5.3% in June and is now the lowest in the country and the lowest level since October 2014.
Source: Winnipeg Free Press / Stats Canada
The Winnipeg downtown market is undergoing a dramatic transformation that is driving growth in the commercial office market. The number of downtown residents has increased 2.8% per year since 2006, which translates to 16,800 people. The average age has been declining, and the largest segment is made up of people between the ages of 25 and 29 with a higher percentage being women. In addition, 51.4% of the downtown population have a Bachelor’s degree from a university, supporting the notion that young and educated working professionals are seeking the ‘live,work, play’ lifestyle in Winnipeg’s core.
Coincidentally, the demand for downtown office space has increased. This was reflected in an overall positive net
absorption of 24,405 square feet (sf) and vacancy rate decline from 7.0% to 6.8% in Q3 2017 across all building classes. In spite of the higher demand, asking net rents have remained stable in comparison to the previous quarter, with a relatively small increase of 2% on a year-over-year basis. Class A buildings continue to ask $20.00 per square foot (psf), which include market inducements in the form of leasehold improvement allowances. The asking rates for Class B buildings are in the mid-teens and rates for Class C buildings are in the low double digits. The Suburban market was extremely quiet in Q3 2017 as there was only 6,500 sf of positive absorption, and the average asking rent of $13.15 psf was unchanged from last quarter.
The Canadian unemployment rate declined by 10 basis points (bps) from 6.7% in Q1 2017 to 6.6% in Q2 2017. Growth in Manitoba’s economy is forecasted to expand by 1.9% this year and 2.2% in 2018. (RBC Provincial Outlook).
Vacancy in the Central Business District (CBD) declined to 7.4% in second quarter 2017 from 8.1% in the first quarter; primarily driven by increased demand within the Class B segment. Despite this decline in vacancy, the average net rent being quoted by landlords in this market segment is $0.36 per square foot (psf) lower than the first quarter. The rental rate average of $14.46 psf was largely the result of positive absorption of 19,198 square feet (sf) in the Royal Bank Building at 220 Portage Avenue, a building which has the highest asking rate of $17.00 psf for any Class B
building in the CBD. As previously reported, higher rental rates are being partially offset by large leasehold improvement allowances as some landlords are aggressively pursuing new and existing tenants for their buildings.
In the Suburban market, there was also a significant decline in the vacancy rate from 7.6% in first quarter 2017 to 5.6% this quarter, with the Class C segment seeing the highest demand seeing 18,221 sf of positive absorption. Coinciding with the decline in vacancy, the average asking net rent for all building classes in the Suburban market increased from $12.69 psf in first quarter 2017 to $13.15 psf this quarter.
The Canadian unemployment rate dropped two-tenths of a percent from 6.9% last quarter to 6.7% in Q1 2017. Growth in Manitoba’s economy is forecasted to reach 2.0% in 2017. (Conference Board of Canada).
Following two consecutive years of favourable growth conditions, Manitoba’s agriculture sector is forecasted to cool off in 2017, though it is not expected to significantly hinder economic growth.
New office developments in the Central Business District are impacting the market in a number of ways. Some landlords of existing class A and class B product are already undertaking a proactive approach to both the retention and attraction of tenants by upgrading their properties. Landlords that have not made this investment are at greater risk of losing tenants and are faced with increasing vacancy rates. Despite the rising uncertainty in the market, rental rates have remained relatively stable. Some landlords are offering larger than normal leasehold improvement allowances as they compete for tenants, recognizing that relocation costs can be a major deterrent for companies.
The Suburban market has been quiet as vacancy rates have remained low and the inventory has remained static. As a result of these market conditions, net rental rates are increasing at a quicker pace compared to the Central Business District.
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