Commercial Condos Hit Local Market

 

A real estate trend popular in super-expensive cities in Canada — Toronto and Vancouver, for instance — is starting to show up in Winnipeg, though it faces an uphill battle to gain traction here.

Class-A office space in buildings such as the McKim Building on Main Street or Glasshouse on Hargrave Street is on the market, but rather than the typical leasing arrangement, these spaces are being marketed as commercial condos.

Kyra Winfield, a senior associate with Avison Young’s retail group, who is marketing the Glasshouse space, said these kinds of units move very quickly in Toronto or Vancouver, but she’s had to warn her client this space may take some time to sell.

“It’s the matter of the right time and place,” she said, painting a picture of the perfect buyer. “It’s a business that wants to maximize the opportunity of being well-located — an opportunity that doesn’t come up very often, with a hotel condo complex, two restaurants, a coffee shop and being almost right across from Bell MTS Place — someone who has a business, who sees the advantages of all those things and wants to build equity in that location.”

Trevor Clay, principal at Capital Commercial Real Estate Services, said the “logic” of commercial condos has yet to take off in Winnipeg.

“There is certainly logic to the concept of office condos, as it allows established businesses to own the real estate they occupy and protect their investment in their own space,” he said. “That said, it’s a very small portion of the overall market.

“There are a few offerings, but it has not taken hold the way it has in some other markets.”

The decision between purchasing or leasing real estate typically comes down to one question, said Peter Moreira, professor of business administration at the University of Winnipeg.

“The primary one is, ‘How do you want to use your resources?’,” he said. “Do you want to tie up your resources in real estate, or invest in the products and services and what you’re presenting to customers?”

Often, he said, smaller, family-run businesses with mature business models — with minimal needs for reinvesting in new products or processes — tend to favour purchasing, with long-term appreciation and succession planning in mind. But capital-intensive companies, such as in software or high technology, tend to prefer leasing, using the cash that would normally be a down payment towards future products.

Leasing also presents less risk in the case of a business failure. “With a lease, you pay whatever breakage fees are involved and walk away.

“The other consideration is do you want to be dealing with property issues,” he said. “Do you want to be in front of your customers doing business, or dealing with a leaky pipe?”

 

The space in Glasshouse is the former main-floor sales centre for the residential condos above. It’s 2,195 sq. ft. and is listed for $645,000. It’s a modern space with floor-to-ceiling windows facing Hargrave Street. Glasshouse was a joint venture between Winnipeg’s Longboat Development Corp. and Toronto’s Urban Capital Partners, and is an integral part of the Centrepoint development, which includes the Alt Hotel, Brown’s Socialhouse, and office and retail space.

Winfield said the interest in selling it as a condo arose from how the Glasshouse complex began.

“This entire building was built from Day 1 as condos, with each unit having its own title, so this was the intention from the beginning,” she said.

The difficulty in moving this kind of commercial condo space, Winfield said, is the ready availability of quality office space in downtown Winnipeg.

“Most commercial businesses end up going with leasing,” she said. “If you sell eyeglasses for a living, you don’t necessarily want to go into business as a landlord and property developer, even if you’re a landlord to yourself.”

For that reason, she expects the future of the Glasshouse space to be as owner-occupied. “It just doesn’t make sense to buy it for the purpose of leasing it out with all the available commercial space downtown.”

Though the preference is to sell the space, she said her client isn’t ruling out leasing the space.

“If the right person comes along — we’re not going to just sell or lease it to the first person who comes along, it has to be the right fit. If we have a business whose preference is to lease it, we will look at that.”

Unlike with downtown retail or office condos, industrial commercial condos have greater potential in Winnipeg, Winfield said. In this case, businesses have specific needs for their spaces — high-voltage electrical supply, specific ceiling heights or floor plans, for instance — and a commercial condo is a cost-effective way to have a space built to precise specifications.

“If you browse around at older industrial spaces, (for some tenants) those spaces may be functionally obsolete,” she said.

“With a commercial condo, you’re getting brand-new, top-of-the-line space. People aren’t necessarily buying it to invest, they’re buying it because they need space.”

Clay agreed the greater potential may be in industrial condos.

“In other markets, industrial condos have become a major trend and we do believe there is potential for this trend to reach Winnipeg,” he said. “There have been very few projects of this variety completed in Winnipeg.”

kelly.taylor@freepress.mb.ca

Know of any newsworthy developments in the local office, retail, industrial or multi-family-residential sectors? Let us know at business@freepress.mb.ca.