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This article was published 01/03/2021 (526 days ago), so information in it may no longer be current.
When the pandemic struck Winnipeg last March, there was reasonable worry the city’s real estate sector was in for a bumpy ride. Who could say what the future — near and far — would hold for an industry that appeared primed for a banner year in 2020? It was anyone’s guess.
The reality over the remainder of the year was less dramatic than doomsday prognostications foretold: office vacancies rose, but not as sharply as they did in cities such as Toronto or Calgary; the retail sector was pummelled by restrictions, lack of consumers and rising costs (at least 37 downtown businesses have closed since last March) but government supports and adaptations have helped somewhat cushion the blow; and the industrial sector, both locally and nationally, was burgeoned by a reiterated reliance on warehouse space, domestic production and e-commerce fulfilment.
So what is to come in 2021? Prediction is a fickle game to play, but real estate firm CBRE’s latest market outlook report anticipates a year of continued challenges, with the true impact of the previous 12 months beginning to reveal itself, for better or worse.BORIS MINKEVICH / WINNIPEG FREE PRESS files
Ryan Behie, vice-president and managing director of the Winnipeg office of CBRE Ltd.
“All in all, we have held our own,” said Ryan Behie, CBRE’s vice-president and managing director. “But we have to be cautious, as there could be yet another shoe to drop.”
One area that might soon face unsteadiness is the office sector, Behie said, where “fault lines have begun to form.”
Over the past year, firms have been forced to accommodate work-from-home scenarios, and while doing so, have had to reconsider their future office needs. Unable to fully commit to new long-term leases or renewals of existing ones, many leases were renegotiated on a short-term basis by tenants. The result is expected to be a disproportionate amount of lease expiries landing in quick succession, which could lead to significant movement. Paired with a forecasted downtown office vacancy rate of 12.2 per cent by the end of 2021 — one of the lower rates among major cities in Canada — this creates an environment of muted uncertainty.
Since the pandemic struck, work-from-home scenarios have forced businesses to renegotiate long-term leases.
The work-from-home factor hasn’t yet shown its full impact either, Behie said. He predicted that down the line, a “very small percentage” of workers will be doing so entirely remotely. With that in mind, a combination approach, with time spent in office and out, is likely to prevail for most. That could lead to a “hotelling” style of office, with firms maximizing the space they retain by having employees split time at work and also splitting physical desk space.
“Businesses are trying to sort out what their mix will be,” he said.
At the same time, the retail sector is expected to continue to deal with the same challenges that have harried it for nearly 12 months. “For many retailers, they made it from April to September,” said Behie. “They may not have made it to February, and if they have, it’s gotten more challenging each day.”
CBRE forecasts smaller retail nodes will see greater change in terms of vacancy than larger ones, with multi-store operators “paring down” their portfolios to consolidate resources. That has the potential to deplete neighbourhoods rich with small business — like the Corydon and Osborne villages, the Exchange District, and the Sherbrook Street strip — of a key contributor to neighbourhood appeal.
This business strain has the potential to spill over into other sectors as well. “As these retailers and service providers suffer, the impact may reverberate beyond the commercial real estate market to the broader appeal and identity of these neighbourhoods,” the report says. That broader impact has yet to materialize, but it presents a warning of the collateral damage down the road, Behie said.
As the retail and office sectors are expected to face challenges, the industrial sector this year is anticipated to build off a historically strong 2020, which saw half a million square feet of new development.
The broadened and sustained demand for industrial space predicts an elevated pace of construction. Industrial development is driving private and public investment in land sales as well, with investors viewing land as a low-risk store of value resistant to inflation. This is evidenced by thriving operations at industrial hubs such as CentrePort, but also in residential land to be used for single-family homes or multi-family developments.
All in all, Winnipeg’s market is responding to the unprecedented stimuli brought on by the pandemic as best it can, subject to the same trends and pressures as other major cities. Many of these trends were already occurring prior to the pandemic, but were accellerated by its presence.
CBRE predicts that nationally, real estate conditions will begin the fiscal year in a state of flux, with much of the future success or struggle tied to a proper vaccine rollout, as well as the implementation of further government supports to stimulate the economy. The Canadian economy, the firm predicts, is expected to perform well relative to other G7 countries.
The office sector will take at least “until the second half of the year” to begin returning to normal, but only once workers can safely return will the long-term extent of the work-from-home phenomenon become clear, CBRE chief global economist Richard Barkham writes in the market report.
As for retail, the footprint will contract, but “what remains will be stronger, more interesting, more convenient and more experiential.”
“Maybe we can find some solace that we’re experiencing the same challenges as our neighbours across the country,” Behie said.
“I’d say we’ve fared pretty well, and there’s a keener sense of optimism going forward in light of vaccines that are to come,” he added. “However, I still think there’s a healthy dose of caution that should be taken.”
After all, prediction is a fickle game to play.
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