St. John’s booms while the rest of Atlantic Canada waits for mega-projects

There was remarkably little talk about the recent purchase of Safeway by Sobeys at the Atlantic Real Estate Forum in Halifax on June 18th. The discussion focused instead on how commercial real estate markets are performing in cities throughout the region.
Frank Sobey, the chairman of Crombie REIT, the biggest landlord in Atlantic Canada which owns the property on which Sobeys grocery store chain is located, brushed aside questions about what has been the biggest news in commercial real estate this year.
This month, Sobeys headquartered in the town of Stellerton, N.S., announced that it is acquiring 213 Canadian Safeway stores in a $5.8-billion deal. The purchase will make Sobeys the second-largest supermarket chain in Canada, behind only Loblaw, and strengthen its position in the West.
Neither Sobey nor Crombie REIT president/CEO Don Clow were willing to discuss the purchase beyond mentioning that the REIT has first right of refusal for any Sobeys-owned property and that their analysis of the acquisitions had just begun. “We are not sure if we have a deal,” said Clow.
Newfoundland, a New Found Land
By all accounts, St. John’s, N.L., had been the primary beneficiary of resource development in the Maritimes. Terry Chaffey the vice-president of real estate with St. John’s-based Fortis Properties, which own five major office buildings in St. John’s and currently has one under construction, described it as “the most exciting market in the region.” Fortis is building a 145,000-square-foot, 12-storey Class A office building in downtown St. John’s, one of five major construction projects in the city.
Office rental rates in St. John’s have plateaued after doubling over the last three years; “vacancy is essentially zero,” Chaffey said. Lease rates, which Altus InSite report are on par with those in the GTA, are high enough to support the redevelopment of existing buildings. Fortis is re-positioning its class B Forest and TD buildings, which in a zero vacancy market has proven to be a challenge, Chaffey said.
Apart from these projects in St. John’s, Fortis Properties has shifted its acquisition program to hotel properties outside the Atlantic region to geographically diversify and out of concern that prices were getting high in Eastern Canada, said Fortis CEO Nora Duke.
While Fortis moves west, Winnipeg-based Temple REIT purchased three Nova Scotia hotels (549 rooms) in February for $87 million, a move that surprised Duke.
A large up-and-coming development on the periphery of St. John’s locally dubbed ‘Dannyville’ and led by former premier Danny, Williams was mentioned by John’s Mayor Dennis O’Keefe and others at the conference, but no other details were provided.

New Brunswick cities stalled
“A tale of three cities” is how Todd Bechard, Atlantic provinces executive vice-president for Cominar REIT, described New Brunswick’s real estate markets. Fredericton, Moncton and Saint John, all places where Cominar owns properties, are not fairing as well as St.John’s. In fact, Bechard said St. John has a 21.5 per cent office vacancy rate.
Some buildings in Saint John will be abandoned, in effect shrinking the market, and there is hope that a revival of U.S. housing and new resource programs will lift the city’s fortunes.
In New Brunswick, the office market is considered stable, but “absorption is very flat. You gain some you lose some, but the growth really isn’t there,“ said Bechard.
“We are really not generating a lot of new tenants. We are really just stealing from everyone else.
“The opportunity is to bring new tenants into the market,” Bechard added. “Economic development is a huge part of the office market going forward.”
Downtown Halifax in the doldrums
In what Hardman Group president Bill Hardman describes as the “push-pull” between suburban and downtown office markets in Halifax, the suburban market is currently on an upswing. The Hardman Group has a development site in Burnside, a suburb of Halifax, for four office buildings. The first, a 400,000-square-foot LEED Gold office building, is under construction and Hardman is on the verge of announcing the second, he said.
Although Hardman described the downtown market as stable, there is “a bit of worry” about its future. The newest downtown Halifax office building, Purdy’s Wharf, is actually 25 years old, which makes it an “old building” in Hardman's eyes.
GWL Realty purchased Purdy Wharf, still the premier office location in Halifax, in 1996. Paul Finkbeiner, GWL Realty's director of real estate, called it a good investment and a credit to “a steady and stable” Halifax office market.
He expects Nova Scotia to perform “above the Canadian average” due to the federal government's ship-building contract expected to get underway in Halifax in the next couple of years. His company would like to invest up to $500 million in Halifax, but they are having difficulty “getting money into the market,” said Finkbeiner.
Canadian REIT (CREIT)'s Michael Ewald, CREIT's regional manager for the Atlantic Region said new office space is being developed in downtown Halifax, Waterside Centre (100,000 square feet) by the Armour Group and a renovation and expansion of the TD Building is being completed by Vladi.
Ewald said that with an average absorption of 20,000 to 50,000 square feet per year, the downtown has three years supply of office space. He expects shipbuilding and possible new Shell Oil initiatives to spin off new tenant requirements in the downtown.
Crombie REIT has two office development sites: International Place approved for 450,000 square feet and Westhill with 120,000. Barry Stockall, Crombie's senior director of office leasing, said they would proceed on the basis of a successful pre-lease.
Charlottetown a sleeper
Don Clow, President and CEO of Crombie REIT and Killam Properties Inc.'s President and CEO Philip Fraser agreed that Charlottetown, P.E.I., is the Atlantic region's “sleeper market” with the potential to do well, an opportunity that Fraser attributed to the growing importance of food production.



Ann launched RENX in 2001 as a part-time venture and has grown the publication to become a primary source of online news for the Canadian real estate industry. Prior to…

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Ann launched RENX in 2001 as a part-time venture and has grown the publication to become a primary source of online news for the Canadian real estate industry. Prior to…

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