Moncton’s Office Buildings Are Emptier, But Industrial Development Is Booming
This is part of a series of stories on the shifting market for commercial and residential real estate in Maritime cities like Saint John, Moncton, Halifax and Fredericton.
MONCTON – It’s a tale of contrasts for the commercial real estate sector in the Greater Moncton Area. While vacancy increased in the office market, the industrial sector is booming.
After a record-breaking year of land sales and sales value in 2019, Moncton Industrial Development (MID) thought the pandemic would lead to a sour 2020. But things looked up around April.
MID not only broke its 2019 record but also almost doubled it. In 2020, it sold more than 90 acres of land for a little over $4.3-million. That’s much better than its average 35 to 37 acres a year in sales for approximately $1.7- to $1.8-million.
General Manager Pierre Dupuis said the boom was driven by companies from outside that were “looking to get a better handle on their supply chain and logistics” by establishing a presence in Moncton.
For instance, Dupuis said trailer company Manac decided to own and construct a warehouse, including a sales office with service and parts components based out of Moncton. The deal between Manac, which is headquartered in Quebec and has offices in the U.S., and MID closed in the fall, said Dupuis.
The lower cost of industrial land and construction, coupled with low-interest rates, also makes Moncton attractive, especially to smaller and mid-sized companies looking to expand, he said.
For instance, JessEm Tool Company of Orillia, Ont., a woodworking tools manufacturer, decided to move its whole operations to Moncton primarily because of cost.
“Our business is growing and it’s not really affordable in Ontario anymore, and I couldn’t find any suitable industrial space or land,” owner Darrin Smith told Huddle in December.
Dupuis said MID is in talks with companies from Southern Ontario and Quebec that are facing similar challenges.
RELATED: Why Ontario’s JessEm Tool Is Moving To Moncton
Local companies are growing too, Dupuis said. He also suspects some of the growth in industrial demand is due to the increase in online shopping, though he can’t be 100 percent sure of the direct correlation.
“Our [industrial] parks are primarily warehousing, logistics, trucking, and transportation-related. About 60 percent of our parks are in that sector,” he said, adding that having manufacturers like Manac and JessEm Tool in the mix is good for diversification.
Many of the businesses at MID’s four parks are considered essential, so they remain busy even during the pandemic.
Dupuis said with the sales trajectory from last year, MID will likely look for new land to build a possible fifth industrial park “very shortly.”
He believes the growth will be sustained over three to five years, although perhaps not to the extent of that in 2020. MID is expecting an even better year in 2021, but things will likely return to normal levels over time.
“We typically average a little bit under 40 acres, and we’ve been hitting that number for the past 25, 30 years…So it’s pretty well steady,” Dupuis said.
Office Buildings Suffer
Office buildings are having the opposite experience.
According to the latest survey by real estate firm Turner Drake & Partners, the office vacancy rate in Greater Moncton, like those in Fredericton and Saint John, increased year-over-year. At the end of December, Moncton’s vacancy rate has gone up to 12.84 percent. In 2019, it had the lowest vacancy rate in Atlantic Canada at 7.96 percent.
Demand actually crept up last year – by just under 1 percent – driven by a growth in the provincial real GDP. But new and renovated spaces also entered the market, pushing the total amount of rentable office space by 6.5 percent, and thereby increasing vacancy rates too.
As of December 2020, the average net rent in Greater Moncton stood at $13.08 per square foot, up nearly 1.9 percent from $12.84 per square foot in 2019. But the average rent for Class A office buildings dropped year-on-year by 1.6 percent to $13.86 per square foot overall.
Generally, Turner Drake notes that vacancy and net rental rates are inversely correlated. If one rises, the other would flatten or fall. But there could be “a lag between cause and effect, with both moving in the same direction, possibly as landlords lower their rents to attract tenants, and sometimes because of changing market conditions during the period,” the company said in a release.
While Turner Drake expects the vast majority of companies to return to the office fully or partially once it’s safe to do so, some may permanently ditch their offices. In the short-term, with a 4.1 percent decline in GDP expected, the vacancy rate for offices in Greater Moncton is expected to further rise to 14.97 percent, without any major new supply anticipated.
The company said, “there is a distinct possibility of contraction in demand for rental office space as leases come up for renewal.”
Last year, commercial building permits in Moncton declined by more than half, coming in at only $57.8-million, from $140.7 million in 2019. The largest projects are industrial ones.
RELATED: Moncton Hits Record $270-Million In Building Permits In 2020
While offices and other commercial spaces are still being leased, the uncertainty brought about by the pandemic is making developers sit out, said Kevin Silliker, director of economic development for the City of Moncton.
“Obviously this is not the ideal time to be investing or creating new commercial space until there’s more clarity around how the pandemic may impact commercial occupancy or leasing on a medium- or long-term basis,” he told Huddle in January.
Richard Tower, managing partner and vice president at Moncton-based iQ Commercial Strategy, said the building permit figures signify that real estate is “very good” overall in Moncton.
“Apartments and the industrial space are doing very, very well,” said Tower.
Apartment buildings will continue to see strong demand in the next two years, he said, as increased housing costs and pandemic pressures on people’s spending push homeownership further out of reach for first-time home buyers.
Tower’s company financed $300-million in commercial real estate projects, including property purchases, construction and refinancing, in Atlantic Canada last year. About 70 percent of that were apartment buildings.
“In 2020, even during a pandemic, in commercial real estate financing, we had a record year, and most of our business is predominantly in Moncton,” he said, adding the company also did more business in Saint John and Fredericton than previous years.
However, many of the deals involving office spaces were refinancing deals.
“We’re maybe not seeing a lot of properties changing hands, but the low-interest rate has been good for borrowers to raise capital for future real estate investments,” he said.
Tower expects office vacancy to increase, as many national firms hold off on making decisions to expand their footprint. But he noted that companies would likely need more office square footage per employee to maintain safe physical distancing.
He also said that while workers will eventually return to offices in one way or another, the remote work trend is likely to become permanent for some.
“We’ll see a reduction in the overall office space [in Moncton], maybe 20 percent overall,” he said.
But it’s not doom and gloom forever, as Tower sees office spaces with good locations in Moncton could be repurposed.
“Location is key. So if you have a good location, you can adjust with the market,” he said.
Retail Resiliency
Meanwhile, the retail sector remains resilient in the face of increased online shopping, the rise of which had led many to believe brick and mortar storefronts will die off.
“But it never does go away,” Tower said. “People still want to go to a restaurant, go to the stores and buy items. So as much as online shopping is going to increase, I don’t think it’s dead for retail at all.”
Still, any increase in online shopping will be a win for the industrial sector.
“It’s going to be a stronger asset class as more folks have made or were forced to adjust to online shopping,” Tower said. “Moncton’s done very well in that space because we are a hub for the Maritimes.”
Location is also key for retail properties. Even if businesses close shop, if it’s a good location, another one will follow closely behind to take their space.
“It’s typically the trend with restaurants,” he said. “There’s always going to be another restaurant going in there. People still want to eat out.”
Despite various economic cycles and shocks like the pandemic, commercial properties remain a “solid investment on a long-term strategy,” Tower said.
Inda Intiar is a reporter for Huddle. Send her story suggestions: [email protected]
Other stories in this series:
- Saint John Commercial Office Spaces Not Emptying Because of Covid-19
- In Defiance Of Pandemic, Halifax Sees Office Vacancy Rates Drop