May 15, 2007

Halifax ripe for retail breakthrough

Off the radar for years, port city's reliable growth attracts attention from developers, LORI MAYNE writes

HALIFAX -- Glenn Munro sees Halifax as a hidden gem. The port city, founded in 1749 as an army and naval base, sparkles with beauty and the promise of a good investment.

"There's a lot of growth and opportunity coming forward. It's sort of there for the taking," says Mr. Munro, managing partner, Eastern Canada, with North American Development Group.

The property development company, with head offices in Markham, Ont., has been turning 80 hectares of a 200-hectare site into a retail power centre known as Dartmouth Crossing. It's a $280-million project.

"Just a little one," quips Mr. Munro in a telephone interview from his base in Montreal.

Wal-Mart, Home Depot and Staples have opened in the centre, located near the A. Murray MacKay Bridge linking Halifax and Dartmouth. He expects 60 to 70 stores, restaurants and other businesses will be operating by year's end.

"It was probably one of the most under-retailed markets in North America," Mr. Munro says of Halifax, noting that a number of retailers had been looking for ways to break into the city's market.

"We also knew there were multiple retailers who were in the market who desperately wanted to move but had nowhere to move to," he says.

"It was one of those situations where, because of the lack of available space, there hadn't been a lot of newer, high-quality retail built in the last five, six years. It had left a void that we were able to fill."

Future phases of Dartmouth Crossing include plans for offices in a campus-type setting and additional retail space. Medium- to high-density residential housing is a possibility.

Mr. Munro says North American Development Group decided a few years ago to look into the Halifax scene, despite some observers' negative perceptions. "People say, 'It's the Maritimes, it's poor, it's got unemployment.' "

But Mr. Munro, who was born and raised in Drummondville, Que., had personal experience in the area. His parents moved to Halifax in 1978 and he attended university in Nova Scotia. "I knew the market fairly well for someone 'from away,' " he explains.

North American Development isn't the only company to see the opportunities in the Halifax region, which has a population of about 372,000.

"It's a sound, steady place to do business," says Bob Mussett, senior vice-president, Atlantic region with the CB Richard Ellis commercial real-estate services firm.

He attributes part of the lure to the strong local economy: "The base is so broad and it's really getting broader." Halifax serves as the regional capital and the financial centre of the east. It has a large military infrastructure that generates $1.5-billion for the economy each year. A half-dozen universities attract research funds and help produce a highly educated population. Unemployment has been running at less than five per cent.

The city's seaport is also the subject of excitement with $100-million expected to be spent over the next 10 to 15 years in port development, essentially extending and improving the waterfront. The Halifax Port Authority and its partners have also been making a case for federal investment in the Atlantic Gateway initiative to help attract additional trade from Asia and elsewhere.

"Those things that have been here are growing, and now we see a few new pieces that come in: research, IT, financial services from a global basis are now adding to that broad base," Mr. Mussett explains.

Research In Motion Ltd., the Ontario-based information technology firm, opened a support centre in Halifax last year. Mr. Mussett notes that the city has also seen the arrival of off-shore hedge fund managers and financial services companies.

His company has seen office vacancy rates decrease to 8 per cent from 13.8 per cent over the past three years; the industrial rate has been holding steady at 6 per cent over the same period.

"Halifax has a more steady growth curve than other centres, other larger centres, let's say compared to Calgary," Mr. Mussett says. "They have ups and downs and more significant economic swings than we do. We see things as very much on a positive trend, so, steady growth. Lots of good, diverse economic news that's going to create activity here . . . we don't see anything going through the roof or falling through the floor."

Mr. Mussett says the steady commercial real-estate market results from two main factors: increased activity in the underpinnings of the economy and a wide variety of people and entities looking to invest.

This past year, for example, saw completion of the sale of $3.3-billion in assets of industrial landlord Summit REIT, which originated in Halifax, to international buyers: the Australian ING Industrial Fund and ING Real Estate based in the Netherlands. The portfolio of Summit REIT, the largest industrial landlord in Canada, is now managed by ING Real Estate Canada.

Paul Dykeman, Halifax-based chief executive officer of ING Real Estate Canada, says the city is a stable location for business: "Halifax has never been a place with lots of ups and downs. It's a very steady-as-she-goes environment."

Mr. Dykeman says ING's interest in Summit REIT reflected a desire to invest in Canada as a whole because of its political stability, economic outlook and relative value. The Summit portfolio takes in 32 million square feet across the country. About eight per cent, mostly industrial property, lies in Halifax.

He says ING would like to double its property space in Canada over the next five to seven years and plans to invest about $200-million a year in new buildings as part of the plan. "Halifax will be a component of that."

All of ING's industrial property in Halifax, about 1.6-million square feet, is in Burnside Industrial Park. The park, which lies adjacent to Dartmouth Crossing, is the largest in Atlantic Canada.

Mr. Dykeman says ING's most recent development in Burnside is an eight-hectare site that includes a 35,000-square-foot "green" office building, home to Royal & Sun Alliance, plus two more buildings that total about 160,000 square feet.

He says once ING is comfortable that Burnside is on its way to 100-per-cent occupancy, it will focus on developing another piece of land, and will do one parcel at a time to meet demand.

"The good thing is you don't have a lot of developers going and just building developments on spec," Mr. Dykeman says of the industrial market in Halifax. "So the supply and demand is pretty much kept in check."

He says some firms see the Halifax market as too small. But, like others, Mr. Dykeman thinks developments such as Dartmouth Crossing signal change. "Because of the amount of liquidity and capital in real estate today, smaller markets -- which Halifax would be considered as one -- are starting to attract more outside investment."

While ING plans to continue its focus on industrial property in Halifax, the company also intends to branch out into more retail and office space over time.

Mr. Dykeman says another key facet of Halifax that makes it an attractive location for business is that "it's a nice place to live."

Additional investment in Halifax means more people are discovering the hidden gem for themselves. As one of Mr. Munro's Montreal colleagues put it after a visit: "Now I know why you like going down there . . . What a great city."

Special to The Globe and Mail

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