Manitoba and Winnipeg Market Analysis

An Economic Overview and Office & Industrial Market Analysis

Chris Karu

A project completed for GWL Realty Advisor’s Portfolio Analysis and Research Services and in partial fulfillment of the requirements for the degree of Master of Arts (Planning) in the Faculty of Graduate Studies School of Community and Regional Planning

17/12/15

Table of Contents

Executive Summary ...... 3

Province of Manitoba Economic Overview ...... 5

Winnipeg Economic Overview ...... 10

Winnipeg Planning and Policy Overview ...... 16

Winnipeg Industrial Market Overview ...... 22

Winnipeg Office Market Overview ...... 29

References: ...... 34

Executive Summary Great West Life Realty Advisors, as a wholly owned subsidiary of The Great-West Life Assurance Company, provides asset and property management, development and real estate advisory services on behalf of pension funds and institutional and retail investors. In 2014 GWL Realty Advisors managed 288 properties totalling $16.5 billion across Canada, with 246 (85%) of assets in Ontario, Alberta, Quebec and British Columbia valued at over $15.5 billion (93%).1 Real estate acquisition opportunities in secondary Canadian markets are becoming a focus for many institutional investors, as quality assets in core markets are becoming hard to find due to increased demand for real estate and rising asset prices. GWL Realty Advisors views Winnipeg as a potential investment destination and thus initiated this economic and real estate market overview focusing on office and industrial properties. This report is a summation of the Portfolio Analysis and Research Services department’s review of Winnipeg and Manitoba’s key economic indicators and office and industrial markets.

Key findings:

 Province of Manitoba economic overview: o Population of 1.28 million makes Manitoba the 5th most populous province, projected to grow 6.3% ( 80,000) by 2019, largely through international immigration o GDP of $52.8 billion (6th most in Canada) with recent annual growth above the national average o Workforce of 626,800, with nearly two-thirds employed by trade-related industries and government services  Winnipeg economic overview: o Winnipeg’s population of 782,600 (8th largest city in Canada) is younger than the Canadian average and is projected to grow 7.3% by 2019, also due to immigration o Winnipeg’s GDP of $35 billion (7th biggest city GDP) is an economy characterized by slow growth and slow output evidenced by a GDP/capita growth rate lower than the national average o Employment of 253,981 is also driven by trade and government, with the healthcare industry the largest employer in the city o Key trade-related infrastructure (rail, road and air) supports strong trade-related industries with agricultural products and bus, aerospace, and agricultural equipment as top exports o Winnipeg’s economy is a diverse economy as demonstrated by multiple high sector location quotients and a high Hachman index  Winnipeg industrial market overview: o The industrial market’s 77 million SF of space (7th largest market in Canada) has a vacancy rate of 5.1%, a combination of stable absorption and little new supply o Low levels of new supply (less than 900,000 sf of new product since 2012, largely small to mid-bay) has led to average rental rates climbing over 40% since 2007; resultantly vacancy rates have remained low o Centreport Canada is a new industrial cluster surrounding the airport, envisioned as a key logistics hub as a foreign trade zone with significant available land (although currently most are lacking servicing) which are primarily owner-occupied and with special purpose facilities o Industrial market characterized with aging product (almost 90% built before 1994) leading to a noticeable premium of rental rates for first generation product  Winnipeg planning and policy overview:

1 GWL Realty Advisors. (2014). The Value of Real Advice - 2014 Annual Review. Accessed online https://www.gwlrealtyadvisors.com/Portals/0/Annual%20Reports/2014/Interactive%20English_Final.pdf

o Of the Province’s $5.5 billion infrastructure package, $3.7 billion is allotted for roads, highways and bridges including upgrading key trade corridor routes around Winnipeg o Winnipeg has outlined 6 regional mixed-use clusters and corridors for development arrayed around the downtown core, with future growth potential in new communities to the north and west of the city  Winnipeg office market overview: o Of the 11.5 million SF of office space (8th largest market in Canada) over 75% is located downtown with Class A space demonstrating the strongest demand (vacancy rates between 3.3% and 7.9% since 2010, rental rates rising from $15.5/sf to $18/sf) while the suburban market has witnessed more variable demand (volatile vacancy rates between 2.7% and 17.2% but stable rental rates between $10/sf and $12.72/sf) o Significant employment loss in both Business services and Finance, insurance and real estate industries between 2008 and 2014 (almost 7,500) decreased demand for office space, indicated by market vacancies raising from 5.6% to 12.3% with 14 quarters of negative absorption o Since 2014 resurgent demand for office space has seen over 330,000 sf of positive absorption (minimal new supply occurring), with market vacancy rates easing to under 10% and employment of traditional office space industries rebounding and projected to continue growing

Report purpose and scope

The report is focused on providing a market overview only and is not designed to drive specific property investment decisions. As such conclusions on where and how to invest are not the scope of this report. It is recommended that discussions with local property experts and professionals is needed to provide a full picture of the Winnipeg real estate market and economy. The scope of the report is intended to:

- To understand the economic drivers of the province of Manitoba and the City of Winnipeg, with a focus on labour, population and historical and forecasted growth - To understand Manitoba’s and Winnipeg’s economic performance, relative to other cities and provinces across Canada - To provide an overview of the municipal planning and transportation framework, with a discussion on key growth areas and corridors as identified by the City - To provide an overview of the Winnipeg Industrial market, focused on supply/demand conditions, as well as development and sub-markets - To provide an overview of the Winnipeg office market, focused on supply/demand conditions particularly within the downtown market, as well key tenant groups

Province of Manitoba Economic Overview Manitoba’s 2014 population of 1.28 million makes it the 5th most populous province in Canada. After years of annual population growth below the national average, Manitoba has grown at a faster rate than the Canadian average every year since 2011. The Manitoba Bureau of Statistics projects Manitoba’s population to grow over 80,000 to 1.36 million by 2019, due to strong international immigration to the province that outweighs the interprovincial outflows by an average factor of 2.4 since 2006.

Manitoba Overview 2010 2011 2012 2013 2014 2015 (ytd) 2016f 2017f 2018f 2019f GDP at basic prices (2007 $ millions) 48,515 49,517 51,106 52,295 52,874 54,137 55,465 56,874 57,864 58,679 Percentage change 2.6% 2.1% 3.2% 2.3% 1.1% 2.4% 2.5% 2.5% 1.7% 1.4% Total employment (000s) 609 611 621 626 627 638 647 658 662 665 Percentage change 1.4% 0.4% 1.6% 0.7% 0.1% 1.7% 1.4% 1.7% 0.7% 0.4%

Unemployment (%) 5.4 5.5 5.4 5.4 5.4 5.5 5.1 5.0 5.1 5.2

Personal Income per capita ($) 32,848 34,052 35,493 36,386 36,832 37,649 38,528 39,578 40,463 41,270

Population (000s) 1,219 1,232 1,248 1,264 1,280 1,295 1,311 1,328 1,344 1,361 Percentage change 1.0% 1.1% 1.3% 1.2% 1.3% 1.2% 1.3% 1.3% 1.3% 1.2% ytd = year to date; f = forecast

(Source: Conference Board of Canada Q2 2015)

With an annual GDP of $52.8 billion Manitoba has the 6th largest GDP, 3.2% of the total economic activity in Canada. Manitoba has continued to see modest annual GDP growth of 2.3% in 2013 and 1.1% in 2014 with a 5 year growth (2010-2014) of 1.8% which is slightly higher than the national average over the same period (1.7%). Between 2004 and 2014 only Alberta (39%) and Saskatchewan (28%) witnessed larger GDP growth than Manitoba’s 27%. Average annual GDP growth is projected to be 1.9% until 2019, lower than the same projections for the national average of 2.1% according to the Conference Board of Canada.

In 2014 Manitoba’s work force reached 626,800 with average annual growth of 0.9% since 2009, one of the lower rates provincially. Good producing industries (Trade, Manufacturing, and Transportation & Warehousing) and Government (Health Care, Education and Public Administration) are the two key drivers of employment in Manitoba accounting for 64% of the workforce with 363,910 employed (Statistics Canada,

2014). The Financial services sector (42,000 employees) is also a key economic driver contributing nearly 20% of Manitoba’s GDP while also posting the 3rd highest employment growth (26%) adding over 9,300 jobs since 2005.

Since 2009 the Government sector has expanded 12% adding over 8,250 jobs (driven largely by Health Care) which is considerably more than the goods producing sector which has experienced 5 year growth of only 1.6% (1,230 jobs added). Notably Construction has grown by 25% since 2009 adding over 6,400 jobs. Looking forward, the Conference Board of Canada projects employment to grow by 38,000 to 664,800 by 2019, a 6% increase over 2014.

Trade remains a key sector of Manitoba’s economy. In 2014 the Province’s $13.6 billion worth of exports (6th highest in the country) were diversified with agricultural products, petroleum products and manufactured machinery being the top exports. 8 of the top 15 exports were agricultural products (wheat and rapeseed being the top 2 products) totaling $3.9 billion or 25% of the total exports, while manufactured machinery (automobile, airplane/helicopter and farming equipment) were 4 of the top 15 exports at a value of $1.3 billion or 10% of total exports. Crude petroleum products as a standalone export were valued at over $1 billion, the second largest single export. Total export growth in Manitoba since 2004 has far outpaced the national rate, 44% to 27%, highlighting the importance of trade to Manitoba’s economy.

In 2014 Manitoba’s main trading partner was the United States with 67% of total exports (over $9 billion) received, while China and Japan received 8% (over $1 billion) and 5% ($715 million) of goods, respectively. Exports to China have more than tripled since 2005 with average annual export growth of 17%, while exports to Japan have increased by 50% with average annual growth of 6%. 97% of Japanese exports were agricultural products in 2014, up from the 40% composition in 2001. 96% of exports to China were agricultural (61%) and raw material resources (35%), up from a combined 29% in 2001. Both highlight the importance of agricultural trade to Asia for the Manitoba economy. Similar to other Canadian economies with a large manufacturing and export market, overall growth (particularly goods-production) is dependent on the health of the US economy and currency conditions. Indeed, looking at the chart below, the sensitivity of goods-producing industries to the US economy is quite apparent. After the 2008 recession, US exports fell over 25% but have since rebounded 39% above pre- recession levels.

This rebound has largely been due to a more than $600 million (141%) increase of crude petroleum exports to the US between 2009 and 2014, from $432 million to over $1 billion. According to the Provincial government between 2009 and 2013 crude oil production doubled from 1.5 million m3 to 3.1 million m3, with total value sold nearly tripling from $6.3 million to $1.8 billion. It should be noted that with 18,977 bbl/day Manitoba’s conventional oil production still ranks well below Alberta (525,009 bbl/day), Saskatchewan (428,117 bbl/day), and Newfoundland (303,765 bbl/day).

Winnipeg Economic Overview Winnipeg’s total 2014 population was 782,600, making it the 8th largest city in Canada. Population growth has averaged 1.4% since 2009, with a 5-year growth rate of 7.3% which is above the national average (5.7%).

Winnipeg Overview 2010 2011 2012 2013 2014 2015 (ytd) 2016f 2017f 2018f 2019f GDP at basic prices (2007 $ millions) 32,299 32,916 33,607 34,355 35,035 35,930 36,887 37,803 38,425 38,992 percentage change 2.4% 1.9% 2.1% 2.2% 2.0% 2.6% 2.7% 2.5% 1.6% 1.5% Total employment (000s) 398 397 409 412 411 425 430 438 441 443 percentage change 0.9% -0.3% 3.1% 0.6% -0.3% 3.4% 1.3% 1.9% 0.6% 0.5%

Unemployment (%) 5.7 5.9 5.5 5.8 5.8 6.1 5.5 5.4 5.4 5.5 Personal Income per capita ($) 35,903 37,033 38,240 38,445 39,033 40,523 41,420 42,581 43,479 44,445 Population (000s) 736 746 760 770 783 793 803 814 825 835 percentage change 1.0% 1.3% 1.8% 1.4% 1.6% 1.4% 1.3% 1.3% 1.3% 1.3% ytd = year to date; f = forecast Source: Conference Board of Canada

Canada Toronto Montreal Vancouver Calgary Edmonton Ottawa Quebec Winnipeg Hamilton Halifax

Population 35,491,925 6,055,724 4,027,121 2,470,289 1,406,721 1,328,290 1,318,122 799,632 782,640 765,228 414,398 5-Year Growth 5.7% 8.3% 6.1% 7.3% 15.4% 14.3% 7.3% 5.7% 7.3% 4.9% 5.3%

Looking at the distribution of age and sex of Winnipeg’s population it is apparent that Winnipeg has a young population relative to the Canadian population. Indeed, the median age in Canada is 40.4 years while in Winnipeg it is 38.5. The population pyramid for Winnipeg also demonstrates this as the majority of the population is below the age of 40, with 23% between the age of 20 and 34. Comparing the relative share of each cohort of total population in Winnipeg to the same National cohort share, each bracket under 34 years of age occupies a greater share in Winnipeg compared to the National comparisons, while all cohorts 35 years and older are below the national share.

With 61% of the Province’s population, the same migration trends apply in Winnipeg: negative interprovincial migration flow is buoyed by high international immigration. In fact, the ratio of international immigration to natural increases has increased from a 1:1 ratio in 2000 to 5:1 in 2014. Looking forward, the Conference Board of Canada projects population to grow 6.7% to 835,000 by 2019.

Relative to the top eight economic cities of Canada, Winnipeg’s output remains near the bottom. In 2014 Winnipeg produced $35 billion in GDP, the 7th largest provincial GDP. With growth rates of 2.2% and 2.0% in

2013 and 2014, GDP growth has remained below or on pace with the national rate every year since the 2008 recession. The average and 5-year growth rates of Winnipeg’s GDP are also below most other key economic Canadian cities.

Furthermore Winnipeg’s GDP/capita is below the national average and the GDP/capita growth rate since 2009 is half the national average, indicating both a slow growth and slow output economy. The Conference Board of Canada projects Winnipeg’s GDP to grow to nearly $39 billion by 2019, with an average growth rate of 2.2%

GDP/Capita ($ 2007) Growth Since 2009 Calgary 84,042 9.5% Edmonton 67,312 17.5% Toronto 50,605 5.9% Ottawa 48,834 -0.7% Vancouver 48,075 9.9% Canada 46,136 7.7% Winnipeg 44,765 3.5% Quebec City 42,616 3.7% Montreal 41,096 3.0% Source: Conference Board of Canada

Winnipeg represents 65% of the total labour market in Manitoba with a total work force of 410,623. The total number of employed in 2014 contracted by 0.25% (1,040 jobs), and since 2009 has maintained average annual growth of 0.6% which is lower than the national average (0.8%) and every other major Canadian city.

Similar to Provincial employment, the key economic drivers of Winnipeg’s economy in terms of employment are Goods Producing Industries (Trade, Manufacturing, and Transportation & Warehousing) and Government (Health Care, Education and Public Administration) representing 62% of the total workforce (253,981 jobs). Trade has long been the top employer but in 2011 was overtaken by Health Care, while Manufacturing has seen a recent steadying of employment numbers after years of declining employment. The Conference Board of Canada projects over 18,000 jobs to be added to the Winnipeg labour market by 2019, with average annual employment growth of 1.3%.

Trade, supported by both Manufacturing and Transportation and Warehousing, is key a driver of Winnipeg’s output and employment. Combined these sectors account for over 32% of the labour force (131,200 jobs) and 31% of the GDP output ($10,884,922,000). Trade Data from Industry Canada indicate that machinery and transportation equipment account for 32% of total exports, while food products account for 26%.

Supporting the trade sector is strong transportation and logistics infrastructure in Winnipeg, located at the junction of the Asia-Pacific Gateway and the Mid-Continent Trade and Transportation Corridors. Winnipeg is one of only two cities with access to three Class 1 rail carriers: Canadian National Railroad, Canadian Pacific Railroad and Burlington Northern Santa Fe Railway. CN’s intermodal facility at Symington Yard handles more than 3,000 per day while CP's yard processes an average of 2,000 cars per day.2 Winnipeg’s James Armstrong Richardson International Airport (YWG) is a full service, cargo-friendly airport operating 24 hours/day located 6.5 km from the city centre serving over 3.4 million passengers and handling more than 175,000 metric tonnes of cargo annually (3rd highest in Canada).3 Winnipeg is serviced by the Trans-Canada highway east-west and the Provincial Trunk highway north-south while also being home to the headquarters of two of Canada’s top 10 largest inter-provincial trucking companies, TranX and Bison Transport.

2 Economic Development Winnipeg. (2008). Rail Transportation. Accessed online at http://www.economicdevelopmentwinnipeg.com/uploads/document_file/rail_transportation.pdf?t=1397601473 3 Economic Development Winnipeg. (2014). Winnipeg Transportation & Distribution: Grow Faster/Central Location. Accessed online at http://www.economicdevelopmentwinnipeg.com/uploads/document_file/winnipeg_transportation_distributionprofile.pdf?t=1 418932609

Manufacturing in Winnipeg is largely comprised of bus, aerospace, and agricultural equipment, while Agribusiness includes agricultural production, food and beverage manufacturing, and wholesale trade of food products. Agribusiness in Manitoba includes 2200 primary producers, 8,800 food and beverage manufacturers and 3,100 wholesale trade establishments4, including Richardson International (Canada’s largest agribusiness). Buhler Industries Inc and Macdon Industries Ltd are two major agricultural equipment and technology manufactures operating and headquartered in Winnipeg.

With North America’s largest bus manufacturers, New Flyer Industries and Motor Coach Industries, manufacturing in Winnipeg it is the largest bus-manufacturing centre in North America.5 Over 50 aerospace companies operate or are headquartered in Winnipeg including Boeing Canada, StandardAero, Magellan Aerospace and Cormer Aerospace which make Winnipeg Canada’s third-largest aerospace sector.6

Another key driver of Winnipeg’s employment is the Government sector, including the Education, Health Care, and Public Administration sectors. Combined these three sectors employ 30% of Winnipeg’s workforce (129,133) and contribute 23% of the GDP output ($7,961,014,893). Growth in this sector is largely driven by Health Care, which has seen employment grown over 25% between 2009-2014 while Education and Public Administration have shrunk in this same period (1.5% and 14.4% respectively). Health Care’s growth is driven by Nursing and Residential Care facilities, growing 34% over the same period. These trends are consistent with the growth pattern of the Health Care sector nationally which has grown 14% over the same period. Indeed, both employment trends are a result of stronger increases in health care funding which is a result of growing demand for services due to an aging population across Canada, including Winnipeg.

4 Economic Development Winnipeg. (2014). Winnipeg Agribusiness: Grow Faster/Agricultural Powerhouse. Accessed online at http://www.economicdevelopmentwinnipeg.com/uploads/document_file/agri_business_sector_profile.pdf?t=1419004827 5 Economic Development Winnipeg. (2014). Winnipeg Advanced Manufacturing: Grow Better/OEM & Suppliers. Accessed online at http://www.economicdevelopmentwinnipeg.com/uploads/document_file/winnipeg_advanced_manufacturing.pdf?t=1418932 246 6 Economic Development Winnipeg. (2013). Winnipeg Aerospace: Growing Higher/Skilled Workforce. Accessed online at http://www.economicdevelopmentwinnipeg.com/uploads/document_file/aerospace_profile.pdf?t=1397601473

Despite Winnipeg’s Trade, Manufacturing and Health Care sectors comprising a significant amount of GDP and employment, the region’s location quotient7 and Hachman index8 indicate Winnipeg is economically diverse. Eight sectors in Winnipeg have location quotients above 1.0 and the region has a Hachman Index of 0.94, suggesting strong economic diversity. Indeed, the location quotient analysis further explains the importance of the Government (Education, Health Care, Public Administration) and Trade (Manufacturing, Transportation and Warehousing) as these sectors all employ a greater share of Winnipeg’s workforce than the national equivalent’s share.

10 Year % ∆ (2006 - 2015) 5 Year % ∆ (2011 - 2015) Total Employment 424,900 10.1% 3.9% LQ (2014) % of Total Agriculture 2,067 0.0% 0.0% 0.29 0.5% Forestry, fishing, mining, quarrying, oil and gas 1,067 0.0% 6.7% 0.13 0.3% Utilities 4,700 0.0% 0.0% 1.44 1.1% Construction 26,067 45.6% -5.2% 0.81 6.1% Manufacturing 42,433 -8.2% 3.7% 1.05 10.0% Trade 63,233 3.2% 1.0% 0.98 14.9% Transportation and warehousing 27,467 15.9% 15.9% 1.26 6.5% FIRE Industries 25,633 -0.3% -7.5% 0.98 6.0% Education 35,767 21.2% 17.7% 1.15 8.4% Health care and social assistance 68,067 29.2% 5.7% 1.26 16.0% Information, culture and recreation 17,067 -2.5% -6.2% 0.97 4.0% Accommodation and Food 29,133 3.7% 2.2% 1.01 6.9% Other services 21,500 29.5% 30.3% 1.20 5.1% Public Administration 25,300 -1.6% -3.1% 1.20 6.0% Business, Professional, Scientific and Technical Services 35,267 5.9% 2.8% 0.70 8.3% (Source: Conference Board of Canada)

LQ (2004) LQ (2014) Agriculture 0.31 0.29 Forestry, fishing, mining, quarrying, oil and gas 0.10 0.13 Utilities 1.58 1.44 Construction 0.80 0.81 Manufacturing 0.90 1.05 Trade 0.96 0.98 Transportation and warehousing 1.19 1.26 FIRE Industries 1.00 0.98 Education 1.08 1.15 Health care and social assistance 1.27 1.26 Information, culture and recreation 1.05 0.97 Accommodation and Food 0.98 1.01 Other services 1.05 1.20

7 This technique helps to indentify differences between local and national economic drivers. The location quotient approach estimates the basic employment (by number of workers) in each industry by relating an industry’s local employment share to its national employment share. An LQ above 1.0 indicates a relative regional strength or specialization of an industry. 8 The Hachman Index estimates the employment distribution of a subject region relative to a (generally larger) reference region. The higher the value closer the subject region’s economy reflects the reference region’s employment mix; the lower the value of the Hachman Index the greater the difference between the regions.

Public Administration 1.39 1.20 Business, Professional, Scientific and Technical Services 0.91 0.70

(Source: Conference Board of Canada)

Between 2004 and 2014, a few changes in LQ occurred in Winnipeg. First, Winnipeg’s manufacturing LQ increased from 0.90 to 1.05 over this 10-year period, while the actual number of people in the sector declining by 13% (6700 jobs) over that time period. Despite this decline of employment locally, nationally the number of manufacturing jobs experienced a much larger decline in jobs - from 2.3 million to 1.7 million. As a result the proportion of manufactured to total employment nationally fell from 14.4% of all jobs to 10.7%(a 3.7% drop) whereas this sector fell from 12.9% to 11.2% in Winnipeg (only 1.7%). Second, supporting the importance of trade to Winnipeg’s employment, Transportation and Warehousing as a share of total employment increased at a rate faster than the national share. Third, government employment represented by Education, Health Care, and Public Administration all remained important to the Winnipeg region as they all had location quotient’s above 1.15. Finally Business Services fell from 0.91 to 0.70, more a result of changing national employment proportions. While Business Services fell 1.0% as a share of total employment in Winnipeg (from 9.4% to 8.4%), the same sector grew by 2.7% nationally (from 10.3% to 13.0%).

Data from the Conference Board of Canada indicates that the biggest employment growth by 2019 will occur in the Business Services (20%), Health Care and Education (9.6%), and Personal Services (17%).

Winnipeg Planning and Policy Overview Infrastructure

The Five-Year Plan to Build a Stronger Manitoba: Manitoba’s Core Infrastructure Priorities is a 5 year (2014-2019) $5.5 billion infrastructure investment plan to upgrade and expand existing infrastructure across Manitoba. Of this $3.7 billion is allotted for roads, highways and bridges including upgrading key trade corridor routes such as the US trade corridor Highway 75, Trans-Canada east to Ontario, and the Southwest Perimeter Highway connecting CetnrePort to outbound highways. There is also $1.5 billion for Municipal infrastructure such as rapid transit, municipal roads, and wastewater treatment facilities. A brief summary of the spending allocation:  $3.7 billion for roads, highways and bridges o $215 million to upgrade the main US trade corridor Highway 75 o $200 million for the Southwest Perimeter Highway that connects CentrePort to Highway 75 (US trade corridor highway) o $320 million for the Trans-Canada east highway to Ontario  $1.5 billion for Municipal infrastructure o $225 million for Phase 2of rapid transit extensions in Winnipeg o $250 million to renew and upgrade roads in Winnipeg o Upgrade or replace rural wastewater treatment facilities

Transit

As there are no rail lines constructed, Winnipeg is serviced solely by bus transit including main line routes, express routes and suburban routes. In 2012 Phase 1 of the Southwest Rapid Transitway was completed, adding 3.6 km of dedicated, physically separated rapid bus transit roadway for buses between Queen Elizabeth Way & Stradbrook and Pembina & Jubilee. Phase 2 will add an additional 7.6 km from Pembina & Jubilee south to the University of Manitoba with construction beginning in the summer of 2016 with service commencing in spring 2020.

Winnipeg is geographically small and can be reached by car very easily. Below is a drive-time study area which demonstrates that the entire city is within a 15-minute drive (everywhere within the red demarcation) of the downtown core.

Planning Policy

OurWinnipeg, is a 25-year development plan for the City of Winnipeg, providing key policy directions for the growth of Winnipeg. This is supported by the Complete Communities document which offers specific growth directions for land use and development within Winnipeg. Centres & Corridors, Major Redevelopment Sites, New Communities, and Employment Lands are identified as potential areas of growth and in-fill.

A typology overview of the different types of potential growth areas and infill opportunities as outlined in the Complete Communities document: Centres Regional Mixed- “...intensely developed, city-wide or regional attractions. They are well-served by public transit and can Use Centres contain mixed use development, including residential and specialized employment, commercial or cultural “Function as key services” strategic areas that provide a mix of uses, Identified Areas allowing for further > Polo Park Area > McPhillips & Leila Area > Regent and Lagimodiere Area > St. Vital Centre Area > intensification of these Kenaston and McGillivary Area > Kenaston & Sterling Lyon Area > Portage Avenue West at Racetrack uses over time, while Road serving as vibrant

gathering spaces that support the daily activities of local residents.”

Community “...characterized as destinations that can serve multiple neighbourhoods and generally contain a significant Mixed Use employment base. They are areas that are already capable of providing high frequency transit or that can Centres be readily adapted to do so through moderate infill and intensification with a mix of uses”

Identified Areas > Grant Park Mall Area > Unicity Neighbourhood “...concentrating on minor to moderate intensification in these centres helps support higher-frequency Mixed Use transit and completes Winnipeg’s community of communities.” Centres Identified Areas > Regent Avenue East (Downtown Transcona) > Provencher Boulevard (Old St. Boniface) > Pembina Highway (Old St. Norbert) > St. Mary’s Road (Old St. Vital) Corridors Regional Mixed- “...specifically designated, major regional arterial roads intended to serve as a link between Downtown and Use Corridors one or more Regional Mixed Use Centres or major activity areas” “By intensifying development with a Identified Areas mix of uses, corridors > Pembina Highway > Portage Avenue > Main Street > Henderson Highway > St. Mary’s Road > St. will become Anne’s Road > Nairn/Regent Avenue West

destinations while continuing to serve as primary transportation routes for residents.”

Community “...provide opportunities for moderate levels of intensification of both population and employment over Mixed Use time. Intensification efforts could include an increased proportion of clustered, multiple storey buildings Corridors with retail and commercial services at grade level.”

Identified Areas > Corydon Avenue > Selkirk Avenue > Osborne Street Neighbourhood “...local collector streets that accommodate retail and mixed use forms in small clusters with low to Mixed Use medium density housing located between the clusters. In contrast to Community Mixed Use Corridors, Corridors these Corridors tend to be located within the neighbourhood level and allow for specific neighbourhood focal points serving the local population”

Identified Areas > Academy Road > Westminster Avenue > Watt Street > McGregor Street > Elizabeth Road Major Redevelopment “...provide transformative opportunities for the development of complete communities with significant residential and Sites employment densities and attractive urban design, capitalizing on vacant or underutilized sites within the existing urban fabric”

Identified Areas > South Point Douglas > Fort Rouge Yards > Parker Lands > Taylor Lands > Sugar Beet Lands > Old Southwood Golf Course > Kapyong Barracks > Public Markets > Ravelston and Plessis > Palliser > Tuxedo/Lafarge

New Communities “...continue to play an important role in accommodating the city’s projected population growth. These new communities will be planned as complete from the outset and will continue to achieve a high standard of sustainability in planning, design, construction and management”

Identified Areas > Precincts E and R – see Section 06, Commercial section > Precinct A – see Section 05, Employment section

Employment Lands “...the economic engine of the City. They include a broad range of clustered industrial and business land uses that can be grouped into three main types: Business Park, Institutional Campus, Manufacturing (General & Heavy)”

“70,000 jobs on new employment lands will have to be accommodated within our urban region over the next 25 years.”

Winnipeg Industrial Market Overview The Winnipeg industrial market is comprised of over 77 million SF of industrial space, making it the seventh largest industrial market in Canada. With an availability rate of 5.1% Winnipeg’s Industrial market has the third lowest rate relative to the other major Canadian cities, indicating a relative strength of industrial market demand. Industrial Net Rentable Area Availability Rate Previous Quarter Absorption National 1,734,894,299 5.8% (3,352,425) Toronto 753,344,476 4.8% (2,107,404) Montreal 296,676,960 7.0% 172,820 Vancouver 180,863,725 6.5% 1,338,855 Calgary 125,368,568 6.3% (2,102,622) Edmonton 109,153,946 4.7% (269,045) Winnipeg 77,197,348 5.1% (503,255) Ottawa 29,646,118 6.7% (83,901) Halifax 11,659,782 9.1% (156,327) (Source: CBRE Q2 2015)

Since the beginning of 2012, 853,440 SF of industrial space has been added to the Winnipeg market. This level is a markedly low level of construction compared to other markets, representing just over 1% of new market supply relative to total inventory– far less than every other major Canadian city. This indicates a low level of industrial market supply in the Winnipeg market. Indeed, economic development officials report

“difficulty in some cases matching features of the existing [industrial] land supply to the requirements of new employers.”9

Industrial Net Rentable Area New Supply Since 2012 % of Total Inventory National 1,734,894,299 55,040,912 3.2% Toronto 753,344,476 14,702,796 2.0% Montreal 296,676,960 5,480,455 1.8% Vancouver 180,863,725 4,285,963 2.4% Calgary 125,368,568 15,153,402 12.1% Edmonton 109,153,946 11,889,440 10.9% Winnipeg 77,197,348 853,440 1.1% Ottawa 29,646,118 664,364 2.2% Halifax 11,659,782 714,635 6.1% (Source: Conference Board of Canada Q2 2015)

As a result of this low supply, industrial rental rates in Winnipeg have been steadily climbing since 2007. Indeed since Q3 2007 rates have increased over 40% jumping from just over $5.00/sf to over $7.10/sf.

According to CBRE statistics, the Winnipeg industrial market is divided into six major markets:

Submarket Market Rentable Area (SF) Vacancy Rate (%) Net Absorption (SF) Avg. Net Asking Rate ($/SF) West 25,271,527 5.7 59,469 7.21 Northwest 12,251,776 8.5 4,590 7.05 Central 11,729,439 3.1 24,089 4.67 Northeast 10,443,176 3.7 (109,125) 6.64 Southwest 9,665,075 2 8,029 7.15 Southeast 8,861,095 7.5 (8,251) 8.79 Other 15,260 - - - Total 77,237,348 5.2 85,271 7.10 (Source: CBRE Q2 2015)

Winnipeg Industrial Node Map (Source: CBRE)

9 Altus Clayton. (2008). City of Winnipeg Comprehensive Employment Lands Strategy. Accessed online at http://www.winnipeg.ca/ppd/planning/pdf_folder/EmpLandStrategy.pdf

According to the Comprehensive Employment Lands Strategy, 10 industrial “cluster” areas with multiple industrial neighbourhoods comprise the industrial lands of Winnipeg: Area Clusters Area Occupied Neighborhoods Description Expansion Capacity Intermodal Facilities (Acres) (Acres) Northwest Airport 1893 114 Murray Industrial Park, Large supply of industrial reserve lands 1580 acres of Airport: 5 km West Saskatchewan North offering strategic economic development vacant, CP: 12 km function; medium industrial zone undeveloped land CN: 21 km CPR 776 743 Dufferin Industrial, Logan- Some of the City's oldest industrial areas; Fully developed Airport: 9 km Mainline CPR, Lord Selkirk Park, medium industrial zone with locomotive with no expansion CP: 5km South Point Douglas, shops/marshalling yards/intermodal capacity CN: 12 km Weston Shops facility; identified for mixed-use development in planning documents Brookside 1538 962 North Inkster Industrial, Variety of industrial neighborhoods Potential to service Airport: 6km Oak Point Highway, (newer industrial park, trucking additional CP: 5 km Omand's Creek Industrial operations/dealerships, vacant lands); employment lands CN: 35 km industrial business zone Inkster- 804 694 Inkster Industrial Park, One of the City's first traditional industrial No capacity to Airport: 8km West Templeton-Sinclair, West parks; some obsolete plant-type expand CP: 3km Kilodan Kildonan Industrial buildings; older, residual industrial areas CN: 30 km encroached by residential development; industrial business zone; identified for mixed-use development in planning documents West St. James 975 927 Pacific Industrial, Sarget Most mature industrial neighborhoods; Cluster is built out Airport: 5 km Park, St. James Industrial light industrial zone as a regional retail CP: 7 km and service hub CN: 18 km Central East 715 467 Chalmers, Griffin, Small, isolated, lower-order businesses; Further Airport: 18km Kildonan McCleod Industrial, medium industrial zone; identified for development CP: 10 km - Munroe West, North mixed-use development in planning would require the CN: 10 km Transcon Transcona Yards, Regent documents extension of local a streets and services Northeast Transcona 762 595 Transcona Yards Mostly railroad lands (CN); heavy Currently vacant Airport: 38 km Yards industrial zone lands + possible CP: 28 km surplus CN lands CN: 6km offer significant expansion capacity Southeast St. 4003 2577 Dugald, Mission Gardens, Every type of industrial format from lower Significant amount Airport: 13 km Boniface Mission Industrial, St. order businesses to noxious industries; of land available for CP: 25 km

Boniface Industrial Park, light to heavy industrial zones; identified greenfield and CN: 5km Stock Yards, Symington for mixed-use development in planning brownfield Yards, The Mint, Tyne- documents development Tees Southwest Tuxedo 1242 350 Tuxedo Industrial Light industrial with commercial/mixed- "substantial Airport: 9km use developments (e.g. housing) ; amount of land CP: 10 km identified for mixed-use development in available for CN: 18 km planning documents development" Fort Garry 1188 808 Buffalo, Chevrier, Parker, Traditional, planned subdivisions; No Greenfield Airport: 14 km West Fort Garry Industrial industrial business zone with commercial development; one CP:15km activity; identified for mixed-use significant CN: 14 km development in planning documents brownfield opportunity

Zone Type Definition IB - Industrial Business Zone This zone provides the opportunity for industrial businesses that carry out their operations such that no nuisance is created or apparent outside an enclosed building, and the use is compatible with any adjacent non-industrial zones IL- Light Industrial Zone This zone provides the opportunity for high quality, light industrial developments and limited accessory outdoor activities. Any nuisance factor associated with these uses will not extend outside an enclosed building IM - Medium Industrial Zone This zone provides the opportunity for manufacturing, processing, assembly, distribution, service and repair uses that carry out part of their operation outdoors or require outdoor storage areas. Any nuisance associated with these uses should not extend beyond the site IH - Heavy Industrial Zone This zone provides the opportunity for industrial uses that due to their appearance, noise, odour, risk of toxic emissions, or fire and explosion hazards are incompatible with residential, commercial, and other land uses (Source: Comprehensive Employment Lands Strategy)

Centreport Canada is another key industrial cluster – 20,000 acres – located around the Winnipeg International Airport that is envisioned to be a key logistics hub with airport and intermodal facility access. Identified as a priority project in the 2009 Federal Budget, Centreport received $100 million in federal funds to expand the inland port into a foreign trade zone. The area includes significant greenfield development potential (although the bulk of the area is not currently serviced):

• Over 200 acres in various stages of development by 39 different companies mostly in Brookside Business Park and Brookside Business Park West. Planning underway for a new 500-acre residential community in the sought lands • Currently underway is the development of a new common use rail facility with transloading capabilities on the centreport lands. The facility would include rail access to the three main rail carriers (BNSF, CN and CP)

Centreport has been relatively successful in attracting new development, however most of the industrial facilities being built in the park have primarily been owner-occupied, particularly with special purpose manufacturing facilities typically less than 50,000 sf. While there has been some speculative and for-lease product developed, inexpensive land (approximately $200,000 per acre) and availability of land continues to make ownership attractive. One issue with Centreport is that the land is largely lacking in basic water and sewage servicing from the city, something that will only be filled in as the development pace increases.

(Source: Manitoba Infrastructure and Transportation)

Analysis of the industrial groups in the Centreport area are quite varied, suggesting that land costs and availability of it are more direct factors driving investment activity versus logistical needs. Conversations with local industrial and market specialists note Centreport is relatively far away from more proximal industrial markets. As well, Winnipeg has seen growing competition for trade with Calgary for national distribution activity (making the Centreport goals to be a major logistics hub somewhat harder).

(Section Break) Since CBRE began tracking market statistics in 2003, the Winnipeg Industrial market has maintained a low vacancy rate because of stable demand and no significant new supply. The overall average industrial vacancy rate between 2003 and 2015 is 4.2%, neither a strong performer (such as Edmonton’s 2.6%) nor a considerable underperformer (such as Montreal’s 7.5%) and remains well below the national average of 7.9%.

*NB: Q4 2007 Inventory Change

The industrial market has had only 8 quarters of significant negative absorption since 2003, which occurred during periods of economic contractions in Canada (2004, 2009, 2015). The cumulative total negative absorption in Winnipeg since 2003 is 3.34 million SF, a figure similar to the total new supply brought on in the same period of 3.29 million SF.

The period between Q3 2009 and Q3 2014 was a strong time for Winnipeg’s industrial market. During this time the vacancy rate fell from 5.2% to 3.7%, net absorption was 3.1 million SF with 1.98 million SF of new supply. However by Q4 2014 the period of strong industrial market demand had cooled. The last three quarters have seen negative absorption of 980,524 SF with only 40,000 SF of new supply and the vacancy rate increasing raising from 3.7% to 5.2% (note however, that both Safeway and Cabela’s vacated the market this year, resulting in most of the negative absorption in the market).

According to the City of Winnipeg Tax Records, the industrial based is comprised of a relatively old and small inventory. While 75% of the total inventory is less than 40,000 SF in size (based on individual buildings, not business parks), only 6% of total inventory is larger than 100,000 SF.

Effective Year Built Count Size (sq. ft.) Count Before 1955 342 6,000 or less 456 1955 to 1979 1041 6,001 to 15,000 568 1980 to 1994 446 15,001 to 40,000 544 After 1994 214 40,001 to 100,000 348 Over 100,000 127

Total 2,043 Total 2,043 (Source: City of Winnipeg Tax and Assessment) (Source: City of Winnipeg Tax and Assessment)

Nearly 90% of the market was built before 1994, leading to a gap in achievable rents between first and second generation product with newer product generally commanding a noticeable premium. Indeed cconversations with local real estate experts also confirm the price gap between older and newer industrial product - while some newer facilities have been able to achieve double digit rents, these facilities have typically had a quasi-retail use. For the most part, existing tenants are price sensitive suggesting flight to quality is not a characteristic of the market. Limited new supply built in the last several years compared to other markets may support this notion considering that the relatively stable market fundamentals (and large industrial base) should have lead to more development.

New supply in the Winnipeg market has generally been small to mid-bay product. Most of the new supply has come in the form of multi-phased business parks. While reports are that the market is comprised of half owner-users, there are a notable number of private and institutional developers in the market. Since 2012 nearly 810,000 SF of industrial space has been added to the Winnipeg market. Key industrial parks include:  McCreary Business Park – Towers Realty Group (100,000 SF) o Multi-phase light industrial park o Last phase: 100,000 SF; 2,000 – 26,000 SF bays, 20 ft. clear height  Brookside Business Park (65,000 SF) o Located in Centreport Canada, multi-phase mixed-use industrial project  Headingley Business Park (100,000 SF) o Located on the outskirts of Winnipeg (Headingley); mixed-use tenant base  Discovery Place – Bentall Kennedy (252,000 SF)

o High-cube large bay industrial building located along the city’s trucking corridor within Inksbrook Industrial Park o 40,000 SF minimum divisible  125 Fennel Street o 40,000 SF total area o 5,000 SF minimum divisible, 24 ft clear  Tuxedo Business Park (Terracon) o Multi-phased industrial park o Last phase (building 13): 43,000 SF, 3,000 SF minimum divisible, 20 ft clear

Of this new supply the majority is located in the Northwest market:

Submarket Total SF Northwest 517,240 Southwest 152,200 West 100,000 Northeast 40,000 Total 809,440 (Source: CBRE Q2 2015) Winnipeg Industrial Market SWOT Analysis:

Strengths Weaknesses ˗ Stable market fundamentals ˗ Price sensitive market, particularly with tenants tied to ˗ Large industrial base for the market size domestic activities; may limit demand for new product ˗ Positive manufacturing activity ˗ Centreport providing opportunities to own versus lease ˗ Limited economic growth historically compared to other market despite stability ˗ Small and old product limits ability to get scale; no quality from an institutional perspective Opportunities Threats ˗ Portfolio acquisition of existing buildings ˗ Increased competition from other markets from a logistics ˗ Smaller industrial development but respectful perspective pulling trade activity away from Winnipeg of the smaller base of demand ˗ Relatively large and niche manufacturing base that has been a sector with strong global competition

Winnipeg Office Market Overview The Winnipeg office market is comprised of over 11.5 million SF of space, making it the eighth largest market in Canada. With a vacancy rate of 10.4% in Q2 2015, Winnipeg’s office market has the third lowest rate of major Canadian cities behind only Toronto and Ottawa. Office Net Rentable Area Vacancy Rate Current Quarter Absorption National 442,184,943 11.4% 534,419 Vancouver 45,518,661 10.9% 822,069 Calgary 62,753,049 14.4% (605,834) Edmonton 24,524,905 11.7% (1,454) Winnipeg 11,478,671 10.4% 10,676 Toronto 153,759,528 9.7% 31,365 Ottawa 40,337,941 10.1% 20,200 Montreal 72,224,624 13.3% 90,847 Halifax 12,057,826 13.6% 10,408 (Source: CBRE Q2 2015)

According to CBRE statistics, the majority (75%) of Winnipeg’s office market is located downtown. The 2.7M sq. ft. of Class A space is allocated over 8 buildings in the downtown core and only 5 being third-party owned (1 Lombard (Richardson Family), 201 Portage (Greystone/Harvard), 360 Main (Artis REIT), 400 St. Mary (HOOPP) and 200 Graham(GWLRA)).

Submarket Rentable Area (SF) Vacancy Rate (%) Net Rental Rates ($/SF) Net Absorption (SF) Downtown Class A 2,727,599 7.9% 18.12 19,329 Downtown Class B 3,500,630 11.0% 12.85 (37,949) Downtown Class C 2,406,821 14.8% 11.18 915 Downtown Total 8,635,050 11.1% 13.40 (17,705) Suburban Class B 2,846,621 8.1% 12.69 28,381 Total 11,481,671 10.4% 13.28 10,676 (Source: CBRE Q2 2015)

Looking specifically at asset types, Class A office space remains the strongest in-demand space in Winnipeg. Tenancies in the downtown core class ‘A’ buildings are typically Financial Services, Law Firms, Accounting and Advisory or Agricultural and Conglomerates. Vacancy rates have ranged between 3.3% and 7.9% between Q1 2010 and Q2 2015 while net rental rates have increased from $15.50/SF to over $18/SF. The Suburban office market of Winnipeg on the other hand has seen more volatile vacancy rates (given the smaller inventory size), from as low as 2.7% in Q3 2008 to as high as 17.2% in Q4 2011, while net rental rates have slowly increased from $10/SF to $12.72/SF.

Winnipeg Office Map (Source: CBRE)

In recent years, the Class ‘A’ market has outperformed the rest of the market in terms of vacancy, averaging a 10 year average of 6.9% compared to the market 8.6% vacancy rate.

*NB: Q4 2010 Inventory Change

Between Q4 2008 and Q1 2014, the Winnipeg office market experienced 14 quarters of negative absorption totaling slightly less than 950,000 SF with only 7 quarters of positive absorption (totaling 330,000 SF). During this time 309,231 SF of new supply was brought to market while the vacancy rate jumped from 5.6% to 12.3%, indicating a saturation of demand.

Much of this decrease in office space can be attributed to lower demand for office space from reduced employment. Indeed, the net loss of both Business Service and Finance, Insurance, and Real Estate jobs that occurred during this period contributed to reduced office demand. In 2008 over 37,000 Business Service employees worked in Winnipeg while only 32,000 were employed in 2014. Simultaneously fewer than 28,000 FIRE employees worked in 2008 with only 25,500 remaining employed in 2014. The net result of almost 7,500 office employees no longer working in Winnipeg is one key explanation for the Winnipeg office market contraction.

Since Q2 2014 however the office market has been heating up. This period witnessed 331,210 SF of positive absorption over 4 quarters with only 1 quarter of negative absorption (14,422 SF), with vacancy rates easing to as low as 9.7%. Q2 2015 added 81,000 SF of new Class A office supply bringing the vacancy rate slightly up to 10.4%.

Over this same period, Business Services and FIRE industries added over 3,800 jobs which is a driver of this resurgent office market demand. Moving forward, the Conference Board of Canada projects an additional 4,200 jobs by 2019 signaling a potential for increased office space demand in Winnipeg.

390,300 SF of office space has been added to the Winnipeg market since the beginning of 2012. This is the smallest amount of office space added to market across all major Canadian cities, indicating a low level of supply.

Currently, a new office development being contemplated is the True North Square located in the Sports, Hospitality, Entertainment District, and is a portion of the $400 million mixed use development that is anticipated to start construction in 2017. The office component is believed to be pending a headlease from a credit anchor tenant.

Office Net Rentable Area New Supply Since 2012 % of Total Inventory Vancouver 45,518,661 1,361,755 3.0% Calgary 62,753,049 3,245,649 5.2% Edmonton 24,524,905 1,389,754 5.7% Winnipeg 11,478,671 390,300 3.4% Toronto 153,759,528 2,658,446 1.7% Ottawa 40,337,941 488,695 1.2% Montreal 72,224,624 2,059,614 2.9% Halifax 12,057,826 989,489 8.2% (Source: CBRE Q2 2015)

Given the relative small size of the Winnipeg office market, large swings of absorption (and subsequent changes in the vacancy rate) occur when large tenants vacate or sublet their spaces. The following table highlights notable large-scale vacancies across the Winnipeg office market:

Quarter Address Tenant SF Net Quarterly Absorption Q2 2009: 1 Lombard Place (Richardson EDS (33,000) Building) (132,140)

433 Main Street Bank of America (28,909) Q3 2012: 400 Ellice Ave IBM (67,000) (36,427) Q4 2012: 423 Main Street Canadian Wheat Board (147,000) (26,966) Q2 2014: 1075 Portage Ave Peguis First Nation 67,000 129,354 (Source: CBRE)

Winnipeg Office Market SWOT Analysis:

Strengths Weaknesses ˗ Stable market fundamentals, low vacancy, ˗ Limited and slow economic growth historically compared to stable occupancy, other markets ˗ Strong projections of FIRE and Business ˗ Lack of depth of tenant candidates for office space Services employment through 2019 ˗ Low and slow rental rates growth – indicative of a slow growth office market Opportunities Threats ˗ Only 81,000 sf of Class A space added to market ˗ Winnipeg economic activity largely tied to US economy since 2003

References:  Altus Clayton. (2008). City of Winnipeg Comprehensive Employment Lands Strategy. Accessed online at http://www.winnipeg.ca/ppd/planning/pdf_folder/EmpLandStrategy.pdf  Conference Board of Canada. (2015). Conference Board of Canada Metropolitan Database. Published Quarterly. Accessed online at http://www.conferenceboard.ca/e- data/metadata.aspx  CBRE. (2015). CBRE Winnipeg Historical Industrial Market Datasheet. Published Quarterly. Accessed online at https://www.cbre-ea.com/index.aspx?_title=iProjects  CBRE. (2015). CBRE Winnipeg Historical Office Market Datasheet. Published Quarterly. Accessed online at https://www.cbre-ea.com/index.aspx?_title=iProjects  GWL Realty Advisors. (2014). The Value of Real Advice - 2014 Annual Review. Accessed online https://www.gwlrealtyadvisors.com/Portals/0/Annual%20Reports/2014/Interactive%20Engl ish_Final.pdf