NEWS

Not enough industrial space in city
Sorry . . . no vacancies
By Martin Cash, Business Reporter Winnipeg Free Press

Rental rates up, vacancy rates down Industrial real estate market Average rental rates/square foot 1992 $3.53 1993 $3.28 1994 $3.15 1995 $3.27 1996 $3.40 1997 $3.65

Industrial building vacancy rates June 1995 4.6 per cent Dec. 1995 2.9 per cent Dec. 1996 3.2 per cent April 1997 2.8 per cent

Source: Ken Krotch, Steenson and Company, Ltd.       IF IT'S true that the demand for industrial real estate is a precursor to economic growth, then things could be looking up for Winnipeg. The demand for industrial and warehouse space has pushed vacancy rates to about 2.8 percent. Before the building boom of the mid-1980's, it was generally accepted that the vacancy rate in the industrial market in Winnipeg was about five per cent.

      Now with about 75 million square feet of space in the city, such a low vacancy rate means prospective tenants are having a hard time finding suitable space. That means there are opportunities for new developments. And for the first time in close to seven years industrial/warehouse space is being built on speculation - meaning construction is underway before the building is leased up.

      Sun-X Properties Ltd. is spending about $3 million building a 65,000 - square-foot multiuse warehouse/office at Dublin Avenue and Midland Street. Bob Andjelic, president of Sun-X said, "We've had about a dozen potential tenants show interest. If they are all serious we'll need four or five more buildings." The last time a development in Winnipeg like this took place was another Sun-X property in 1990. Andjelic's company now owns and manages more than one million square feet of office and warehouse space with acquisitions in the works that would put the total up to 1.5 million square feet - that's 10 times more space than the company had in 1987. The company now has more than 100 different tenants and because of its large portfolio is able to move tenants around within its own inventory as their needs change.

      In addition to the Midland Street building, Sun-X is also building a 24,000 - square-foot plant in the St. Boniface industrial park for metal products distributors, VICWEST. "Room to grow" VICWEST's manager of logistics, Jack Bradley, said there were only about four buildings in all of Winnipeg that met his specifications. "We needed a heavy-duty floor, with grade-level loading docks and land to store inventory outside. This is an expansion piece for our business, and this will give us room to grow."

      Kevin McGarry, president of Colliers Pratt McGarry, said, "With such a low vacancy rate there is not enough choice. There is not enough choice. There is lots of activity in the industrial market. This is particularly important to the Winnipeg market because there is a large stock of industrial space. With such a low vacancy rate now, it means there has been a lot of space eaten up. It is a very good indicator for future developments.

      Ken Krotch, a real estate broker specializing in the industrial and commercial markets with Stevenson and Company Ltd., tracks space inventories. While his research indicates that there has been a consistent level of new leases in the industrial market over the past three years, he said. "The demand is definitely more intense now. And because there is less space, lease rates are better because there is less space available." Krotch said there has been at least one million square feet of new industrial leases signed for each of the past three years, and if Winnipeg doesn't hit that level this year it will only be because of lack of inventory.

      For Andjelic and his son Rob, who handles leasing, the market is excellent. "Five years ago when a lease was up, the space might sit empty for six months or a year," the elder Andjelic said. "Now Rob's got the space rented out even before the previous lease is up. Our vacancy rates are around one per cent." Sun-X, along with Morguard Investments, are the largest industrial and warehouse space owners in the city. Sun-X stayed in business through the early '90's when many of the country's largest real estate developers were collapsing from the burden of debt. One of the reasons for Andjelic's staying power and enduring success has been his insistence on the flexibility of use of a building. "At one time I had a stack of 60 buildings that were for sale on my desk, but there were a dozen at most that I felt were versatile enough," he said.

      "St. James is the area of the city most in demand," he said. "But most of the buildings have ceiling height of only 12 feet to 16 feet and most of the building needs today call for much greater ceiling height." While some institutional investors such as Great-West Life have divested their industrial real estate holdings in Winnipeg, Sun-X has been buying them up. Now there are more tenants than there is space and Andjelic is excited. "People are always talking down about Winnipeg," he said. "We think this is a great market."

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