Developers are counting on big-names and big-box tenants to shape the capital's retail growth

BY GEOFF KIRBYSON

After surviving the economic downturn, players in Winnipeg's retail and industrial sectors are looking forward to better times in 2011 and beyond.

The outlook is certainly favourable on the retail side as one, and quite possibly two, major projects are set to come on stream in the next few years.

Unquestionably the biggest boost should come from the 2013 arrival of IKEA, the most hotly anticipated retail event of all time, if you listen to some fans of the iconic furniture store. The Swedish retailer has signed on to be the lead tenant in a 1.5-million-square-foot development in South Winnipeg. Plans for the Seasons At Tuxedo, as it has already been dubbed, call for it to be the biggest retail hub in the province, dwarfing current titleholder Polo Park Shopping Centre by 400,000 square feet.

The second large project is still a bit of a question mark if you ask anybody except David Asper.

The son of late media mogul Izzy Asper is in the latter stages of finalizing a deal to buy the Winnipeg Blue Bombers of the Canadian Football League. The chairman of Creswin Properties is counting on the projected cash flow from a 640,000-square-foot, high-end shopping centre, The Elms, to secure a loan that will allow Creswin to pay back $75 million of the $90 million lent to it by the province to build a new 33,000-seat stadium on the University of Manitoba campus. If the deal goes through, The Elms will be built on the site of the current football stadium, down the street from Polo Park.

Excavation on the new stadium got underway in August. Excavation on the bowl and stadium site will take approximately three months to complete, according to Creswin Properties, and the stadium will open in 2012.

IKEA affect

Derrick Chartier, president of the Winnipeg office of CB Richard Ellis, the listing agent for Seasons At Tuxedo, predicts the presence of IKEA will attract visitors - and their wallets - from far and wide.

"We look at the centre as being a super regional draw. It won't just draw from Winnipeg. This is going to draw from northern Manitoba, eastern Saskatchewan and from northwestern Ontario," he said.

The underground infrastructure for the development has already been completed and the roadwork to accommodate has begun but won't finish until next year. Construction is set to begin shortly after.

"There's no question IKEA will be a huge attraction but there will be other unique retailers in the centre as well. There will be dozens of storefronts, a mix of retailers, restaurants and entertainment as well as a hotel," he said, adding some of those names will be announced this fall.

He said the site, located on Kenaston Boulevard at Sterling Lyon Parkway, was chosen specifically because of its proximity to Winnipeg's most affluent neighbourhoods in Tuxedo: River Heights, Lindenwoods and Whyte Ridge.

"It is a very good traffic feeder throughout the city. It's Winnipeg's interior ring road corridor," he said.

The Tuxedo Business Park sits on land immediately adjacent to where IKEA will stand one day. Michael Falk, vice-president of Terracon Development Ltd., which runs the park and two more in St. Boniface in the north part of town, doesn't think the furniture store will be a boon to its business next door but it might help fill the Park's 10 per cent vacancy.

"It will add another level of amenities to our tenants. It might make my location a little more attractive to a large employer than somewhere where you have to drive 15 minutes to get to a restaurant. IKEA would probably be the nicest amenity in the city right now," he said.

This year is the first one in seven that Terracon hasn't built anything, a development Falk blames on a general economic slowdown and lack of credit-worthy tenants in the marketplace.

"Right now there's very little demand, which is the disappointing part of it. We offer a park-like setting in a suburban location that isn't available elsewhere in Winnipeg. We put up one building on spec and leased it relatively quickly a year-and-a-half ago. This year there wasn't the market demand to build anything new. We're developers, and like farmers, we're always optimistic that tomorrow will be better," he said.

Rent hike needed

For that to happen, Falk said the market would need to see a stronger manufacturing sector, which would drive more employment and lower building costs.

"The cost of construction is far outweighing the rent that we can generate," Falk said.

Developers were simply sitting on their hands this year, according to Martin McGarry, president of DTZ Barnicke, because global economic uncertainty caused market activity to be "way off" in 2009.

"We don't have enough new real estate, the vacancy rate continues to plummet and our construction costs are so high that it has scared off a lot of development. We have to wait until rental rates catch up to make it worthwhile to build again," he said.

McGarry said he expects to see a healthy year in 2011 with perhaps 100,000 square feet of space added to the market, about one-fifth of what was typically built in the late 1990s.

"I think it will take a little while longer to get to those numbers," he said.

The numbers in Winnipeg's retail development are spread over a half-dozen "dominant nodes," said John Pearson, a broker and developer at Shindico Realty/IC&I Properties, a leading commercial developer in Manitoba. The most active areas are Kenaston and McGillivray boulevards, Pembina Avenue and Bishop Grandin Boulevard, Taylor Avenue and Polo Park, all in the south end of town, and the intersections of Regent Avenue and Lagimodiere Boulevard and McPhillips Street and Leila Avenue in the north.

"They're all holding their own fairly well, considering we just went through this recession," he said.

Pearson said retail vacancy rates are incredibly low, down to about 1 per cent in a number of power centres, and near 3 per cent overall. Long-term occupancy rates are high and lease rates are holding their own, too. Both Seasons At Tuxedo and The Elms will bring some much-needed supply to the market, he said.

Industrial

On the industrial side, Pearson agrees that the market has slowed down over the past two years but overall, the sector has kept its head above water.

Ron Hambley, executive vice-president of the Winnipeg Construction Association, said 2010 has been a good year and all indications point toward a continuation of that trend over the next six to eight months.

"We've heard the Ontario marketplace has slowed down a bit but Manitoba, Saskatchewan and Alberta are surprisingly busy. We're seeing a lot of confidence in our construction marketplace and we hope it carries us through 2011," he said.

Hambley said that there is still quite a bit of federal government stimulus money working its way through the market - that well is due to dry up by next spring - but there's also a lot of other public and private spending in Winnipeg.

He expects to see a new wave of big-box developments to start in short order, featuring such new players to Winnipeg as Lowe's home improvement stores.

from Western Investor October 2010