Despite many working from home, city office space still in demand
Thursday, March 4, 2021
The Windsor Star/Dave Waddell
The pandemic has chased many workers out of offices and into their homes to do their jobs, but top commercial real estate remains in demand in Windsor.
This week, a piece of prime city commercial property, the Class A Midtown Business Centre complex, sold in a $12.5-million deal between two local parties.
The buildings located at 2485-2491 Ouellette Avenue are home to the offices of the Workplace Safety & Insurance Board, global logistics company Expeditors, Comerica Bank, multinational conglomerate ThyssenKrupp and several legal offices.
“This is the largest purely post-Covid office investment transaction in Windsor,” said Brook Handysides, vice-president of CBRE Windsor, a commercial real estate firm. “You see a transaction like this, north of $10-million, about once a year.”
Together, the two buildings contain just over 63,000 square feet of office space. There are no plans to make any major changes to the buildings.
The smaller of the two buildings housed the former Olive Garden Restaurant and was built in the 1980s. The ThyssenKrupp building was erected in the 1990s.
CBRE Windsor senior associate Brad Collins said the sale reflects the strength that remains in the local commercial/industrial real estate market.
“From a price point, there wasn’t a COVID-19 discount in the price,” Collins said. “The building held its value.
“A lot of the key decision makers out there still believe in the office market. They’ll be making the work-from-home versus the office decisions.
“We’re anticipating a return to offices.”
However, it won’t necessarily be business as usual at the office. Handysides said Midtown Business Centre reflects the type of property that he expects will be increasingly in demand.
“The physical office space will be part of the future of work, but it will be designed to support more flexibility and choice,” Handysides said.
“There’ll be more focus on quality buildings.”
For tenants, that means having better air filtration systems, having more spaced-out desks, and wide open office spaces may see some walls being erected.
Windsor’s downtown commercial vacancy rate sits at 23 per cent, but that’s down 1.9 per cent from 2020. The suburban office vacancy rate has dropped 2.8 per cent from last year to 13.5 per cent.
The combined average vacancy rate for Windsor is 15.8 per cent.
“I think one of the things that will make suburban offices attractive will be having your own entrance, eliminating the common lobby,” Handysides said.
In its 2021 forecast for the Windsor region released last month, CBRE is predicting a strong commercial/industrial real estate market.
Stability and significant investment in electrification by automakers along with the City of Windsor’s incentives to push increased density in the downtown are expected to continue to attract investors.
“We’re continuing to see strong momentum in the commercial market,” Collins said.
“Buyers who are getting priced out in the residential markets are now investing in commercial. The low cost of debt is creating a lot of attractive opportunities for investors to come here.”
In addition to local investors, Handysides said money from the Greater Toronto Area and overseas is flowing into the region.
“We saw a strong recovery in late 2020, and 2021 continues to show investors have strong confidence in Windsor,” Handysides said.
“I think we’re only in the third inning of this cycle. The fundamentals are strong in this region all the way up the highway to London.”
Handysides credits Canadian stability in economics and government, along with the potential for stronger returns in a smaller city like Windsor, for the increase in investment.
Like residential property, industrial real estate is in short supply.
Windsor is at a record low with a vacancy rate of 2.2 per cent for industrial property in the fourth quarter of 2020. With little new construction anticipated this year, that number isn’t expected to rise in 2021.
“If you’re looking for over 100,000 square feet, you’re definitely under five options,” Handysides said. “The quality will vary significantly too.”