Demand for commercial real estate properties has been brisk in Winnipeg in 2012, according to a new report.
The RE/MAX Commercial Investor Report outlined that “low interest rates and equity gains of existing holdings have been strong drivers fuelling the market.
“National and U.S. retailers have been active, looking to secure prime locations in close proximity to new residential neighbourhoods, despite a sharp increase in retail rents over the past two years.”
“There’s plenty of interest in Winnipeg, that’s for sure,” said Tom Derrett, the chair of the Commercial Division of WinnipegREALTORS®.
“And, the market has been healthier this year than it has been for quite awhile,” he added.
Derrett said there has been a high demand for commercial space in all segments of the market, “but the challenge is that there’s just not a lot of product out there.”
Concern for a lack of available commercial space was also expressed in the RE/MAX report.
Another recent survey released by the Real Estate Property Association of Canada (REALpac), indicated that Winnipeg’s commercial market is benefiting from being among four Canadian cities that have the lowest property taxes per $1,000 of assessment at $25.84.
The 2012 Property Tax Analysis reported that Calgary, Vancouver, Edmonton and Winnipeg have the lowest commercial property tax assessment per $1,000 in Canada.
“If anyone thinks our commercial taxes are too high,” said Derrett, “they should be following the Presidential Leadership debates in the U.S.”
During the most recent debate, Republican presidential candidate Mitt Romney specifically mentioned Canada’s lower federal corporate tax rate of 15 per cent. The challenger to U.S. President Barack Obama said the American tax of 35 per cent makes the nation uncompetitive with Canada when it comes to attracting new business investment.
According to the RE/MAX report, competition for investment has been especially fierce in Winnipeg due to product being extremely limited.
“Multiple offers remain commonplace, with sought-after properties in the $1.5 million to $3 million range generating several bids if exposed to the open market. Multi-unit residential and large, quality retail properties — such as strip malls with an established anchor — are most coveted, along with multi-tenant industrial properties in the $7 million to $10 million range.
“Generally, properties with solid occupancies are drawing the greatest attention. Prices remain on the upswing, as increased demand has resulted in a major compression of cap rates and has influenced lease rates on renewal that investors are willing to accept.
The report indicated there is a trend toward owner-occupied properties, “but the vast majority of buyers in today’s market are seeking out more passive investments, chasing attractive income streams to add to their portfolios. Solid returns have stimulated ongoing demand, with many properties realizing double-digit equity gains year-over-year.”
According to the report, some properties have sold several times over the past two to three years and continue to set new benchmarks.
Derrett said the strength of the local economy has contributed to the expansion of existing commercial properties and has brought new developments into Winnipeg, such as IKEA and Target.
He said low interest rates, low returns on GICs and the volatile stock market are making the commercial real market more attractive to investors.
With new product entering the market, it allows investors to re-develop and re-position their properties, Derrett added.
“There’s also room in the market for more retail developments, such as in southwest Winnipeg,” said Derrett. “Per capita, Winnipeg has less square feet available for retail relative to other markets in Canada.”
“Purchasers in the multi-unit residential segment are on a tear, acquiring properties for conversion to condominiums or rehabilitation,” according to the RE/MAX report. “Despite Manitoba’s tight rent controls, the appeal is considerable, especially in light of the city’s rental vacancy rate — now hovering at a mere 0.5 per cent. The climate has also sparked a serious upswing in infill, with every piece of available vacant land or tear-down property being assembled for multi-unit residential infill projects.
“As a result, assembled land prices have escalated — now out of reach for some — as current owners take advantage of the opportunity. Lack of supply and falling cap rates throughout the passive income stream properties have driven more purchasers to consider multi-family than ever before.”
Due to the demand, the price per unit has risen exponentially. Multi-family sales represented more than 40 per cent of the $300 million in total investment sales in Winnipeg in 2011, and product is being snapped up as soon as it becomes available.
A considerable amount of investment dollars are being funneled into revitalization, which is having a positive impact that radiates to all segments, including residential.
“Overall, very little inventory is hitting the open market for very long,” RE/MAX reported. “REALTORS® typically have clients waiting in the wings for the right property to come on-stream, and they’re willing to ante-up, although they can be discriminate. The buyer mix remains exceptionally diverse and includes everyone from the small, first-time investor to large investment trusts.
According to the report, the provincial nominee program has prompted an increase in the investment dollars being redirected from foreign markets — not only in Winnipeg, but also in rural Manitoba — with those from Eastern Asia most prominent.
As well, experienced buyers have re-entered the commercial market en masse and now dominate the landscape.
Prices have not appeared to reach their peak, and as a result, the momentum is expected to continue unabated in the near-term.
“Slow growth in the United States and global economic concerns may see price growth moderate somewhat from the current pace, although given that Winnipeg remains undervalued in comparison to other major centres, the long-range outlook remains positive.”