ST. JOHN'S, N.L. — Take a drive around the business parks and retail-office areas of St. John's metro and you'll spot quite a few for lease and for sale signs.
Charlie Oliver, CEO and owner of commercial real estate company Martek, has been in the game for almost 40 years and knows from experience the business goes through waves of change.
"What am I about the market? I am right now contemplatively positive. We're at the cusp of another positive infusion of demand in the marketplace, but it will not happen like that," he says, clapping his hands on the last word.
During an interview with The Telegram in his office on the eighth floor of Atlantic Place in downtown St. John's, he emphasizes that he sees this as a gradual movement within the market.
"It won't be instantaneous, but over the next couple of years, we should see a steady, growing demand, which should bring back a bit more stability in the downtown and in Stavanger and Galway."
Connections
There are a number of intertwined webs connecting these commercial destinations. The Stavanger Drive area will get a boost in the near future once employees at ExxonMobil Canada move into a new building on Hebron Way, vacating their offices at Cabot Place in downtown St. John's.
Meanwhile, DewCor’s Galway development — a venture by former premier Danny Williams — got a big boost last year when Costco left Stavanger Drive and opened a new, larger store in Galway.
"Real estate tends to move in cycles," Oliver said. "We see a downtown office market five or seven years ago booming and full. Here we are today, it's probably on the bottom end of the cycle with some significant vacancies, but poised in another year or so to come back. We see the tertiary markets out in Stavanger Drive and out in Kelsey Dive — both those have grown exponentially in the past five years. They may now become a little more static, filled while the other office spaces in the city get back-filled."
Rob Coleman has worked in commercial real estate for about 15 years and is vice-president of the St. John's office for CBRE, the largest commercial brokerage firm in the world. He knows there’s lots of uncertainty about the overall economic climate in Newfoundland and Labrador, but like Oliver, he sees moving pieces pointing to general confidence when it comes to the St. John's metro area.
"We talk about Costco committing to a really significant capital expansion in St. John's in partnership with (DewCor owner and president) Williams and Plaza REIT. And then you look at Exxon opting to move forward with that expansion of premises and long-term commitment to the east end of St. John's," Coleman said.
"I think, really, on two separate segments of the commercial market, two of the biggest players in the world committing to Newfoundland and St. John's, that should show us that there's a lot of chatter and noise in the market in terms of confidence in the local economy. But really the underlying current is that there's still a lot of strength and legs in what's happening here."
Safe bet
Coleman considers it a safe bet to suggest there will be lots of further commercial development activity in Galway, noting, too, that Plaza REIT, a company responsible for most of the box stores in St. John's metro, is a strong developer.,
"They know that business extremely well and just have a demonstrated track record of results," he said. "They don't just go into things, and I've not seen any type of failure on Plaza's side."
Oliver considers Costco the anchor tenant for Galway.
"That's highly positive in that you have a massive, recognized brand that draws a lot of customers," he explained. "And by having customers in one area, it facilitates a spinoff of businesses around it that those same customers can avail of."
Costco's former home in the east end remains empty, as does a neighbouring property that used to be a Target department store. The nearby RONA on Torbay Road is also closed, as are a number of box stores in the area.
Oliver suggests creativity will be required to bring new life to the larger buildings. Meanwhile, he points out that the loss of Costco has resulted in opportunities for businesses still operating in that area, such as Dominion, Walmart and the Coleman's Grocery Store on Newfoundland Drive.
The Stavanger Drive area is close to a number of newer residential subdivisions and, in addition to retail stores, it has amenities such as doctors, dentists and gyms.
"People who work in office buildings like to have those amenities," Coleman said. "I think Stavanger Drive, (with) Exxon putting a flag there for the foreseeable future, now we'll see other service firms who will likely supplement their current office facilities with a smaller (office) or another office around Exxon that will add to the growing office development in that area."
CBRE is currently the listing company for the former Costco, Target and RONA properties, and Coleman said at least two of those are close to having new tenants.
Vacancies
On the ExxonMobil move, Coleman is aware of activity to fill that vacancy once the company leaves Cabot Place later this year. He also credits management at Atlantic Place in downtown St. John’s for finding new tenants consistently. From his vantage point, there remains a lot of interest in that area of the city.
"We're looking at maybe 40,000-50,000 square feet, just on (CBRE) business, of new entrants into the market that want to be downtown. That's a significant piece of that challenge," Coleman said.
Zack Howard, an agent specializing in commercial real estate for Royal LePage who also has lots of experience in commercial lending, sees a noticeable trend when it comes to redeveloping older properties in St. John's metro. Last year, Genoa Design International took a building in Donovans Industrial Park in Mount Pearl that had been vacant for a couple of years and found a way to repurpose it for the company’s use.
"They're one of the fastest-growing companies in Newfoundland and Labrador," Howard said.
Howard said the former RONA location on O’Leary Avenue will be repurposed for combined retail and office space.
Financially, he says it can be more advantageous to look at redeveloping an existing property, as new construction projects can prove to be cost-prohibitive.
"It's tough to get your bank onside to do a new development based on construction costs and land costs. The more appealing investment from a landlord-development standpoint is probably to buy an older, vacant, non-essential-use building and repurpose it ... than you would a new construction."
New life in the square
KMK Properties Inc. received city approval last year for a six-storey mixed-use building on the site of the old Dominion grocery store in Churchill Square. Martek leases retail and office space in the nearby Terrace on the Square property, which includes a Shoppers Drug Mart. While he has not received any notice, Oliver expects Shoppers will move into the street-level space at the new building. With new apartments included in the mixed-use development, Oliver believes this will revitalize Churchill Square. He's already looking at potential tenants to back-fill the Shoppers space.
Sonoco Group's Parkhotel planned for the parking garage attached to Atlantic Place is another redevelopment venture Oliver views as a positive step in St. John's.
Recent condominium developments like the Star of the Sea Residences and MIX Apartments on Duckworth Street can bring more residential activity to the downtown area, and with that a need for new retail services.
Martek's office is located in Atlantic Place and handles leasing arrangements for other spaces in the building. Oliver said the Business Development Bank of Canada is going to move from the main level to a higher floor. Martek is looking at possibly attracting an urban grocer to take over that space, with the potential to add a small-scale food hall. The food court as it has existed in the past at Atlantic Place will be abandoned — Oliver said Martek has deliberately avoided re-leasing kiosks, though it intends to keep Jumping Bean Coffee. The plan now is to repurpose that area for co-sharing workspaces.
Oil sector
Optimism about the future of oil and gas in the province suggests there will be further need for office space and residential units, which in turn could lead to further demand for retail services. Coleman acknowledges the sector is "out of favour" at a moment in time when so many people are thinking long and hard about climate change, but he does not consider himself alone in believing oil and gas is part of the global energy solution.
"Exxon certainly doesn't see oil going away anytime soon, nor do the other producers," he said, pointing to the level of interest in bidding for offshore exploration rights in Newfoundland and Labrador.
On the industrial side of the commercial real estate market, Coleman sees businesses serving the oil and gas sector as the prime movers for that market.
"These are buildings with 40- and 50-foot ceilings that are engineered to hold 50-ton cranes that can pick up these pieces of equipment that are going offshore in an extremely rugged environment. In a lot of cases, they're designed and engineered specifically for Newfoundland, and they're stacked and tested inside these buildings before they go offshore."
As Equinor Canada moves along with efforts to eventually develop its Bay du Nord field, Coleman anticipates there will be further investment in local facilities, creating a need for new buildings.
"Those are not the types of buildings that are sitting vacant. All of those buildings are occupied today, and there's a pent-up demand for those types of facilities. I think we'll continue to see that grow."
Recession potential
Though he does not feel there's likely to be another big boom for St. John's tied to the oil and gas sector, Oliver reckons it will have a positive impact on the commercial real estate market for office and industrial spaces. For the latter, he expects Galway and Kenmount Terrace will attract most of the new construction.
"If you had talked to me this time last year, I probably would have had a little more negative perspective of the market than I do as we sit here today," he said. "In six months’ time, assuming the Bay du Nord project proceeds and assuming the contracts are awarded to the locals in the level that we hope they will be, then we'll see a take-up in a significant portion — and not all, by any means — of some of the downtown vacancies."
In the short term, Howard sees potential for a global recession in light of the coronavirus, and said this could negatively affect the oil and gas sector. However, like Coleman and Oliver, he believes the industry has a strong future in Newfoundland and Labrador.
"Long-term though, I think our opportunities are strong here because our fields are 30-plus-years of useful life fields," Howard said. "The government is a friendly jurisdiction to do business with as opposed to some jurisdictions."
In the United States, Howard expects the shale oil and gas industry will experience hardships, as it has been reliant on low capital costs for fields with short lifespans. As capital investment becomes harder to come by over the next 12 months, Howard speculates more attention will be paid to long-term opportunities like those available in Newfoundland and Labrador.
Twitter: @CBNAndrew
