Surface parking driving higher land costs

One hundred years ago, Winnipeg’s economy was booming, and land costs here were equal to those in Chicago. 

This period of big-time prosperity was relatively short-lived.  As a result of a number of factors, including the opening of the Panama Canal and the skittishness of investors following the Winnipeg General Strike, Winnipeg’s economy declined.  And downtown land values declined as well.

For the past 30 to 40 years, downtown land values have stood at approximately $25 per square foot.  This value has reflected the long-term investment and construction potential of the land, and it has been remarkably stable for several decades.

In the past two to three years, however, downtown land value has risen rapidly.  The value of vacant land between Portage and Broadway avenues, and between the Legislature and Main Street, has risen to $50 per square foot.  This doubling of land value might be perceived as an extension of the boom in residential real estate value, and proof that Winnipeg’s downtown is thriving.

However, Winnipeg’s downtown is not thriving.  There has been little new private-sector, market-driven construction.  The Hydro Building is the quid pro quo for the purchase of Winnipeg Hydro, and the MTS Centre was a highly subsidized attempt to solve the embarrassment of the Eatons Building. Developers tell me that there is virtually no demand for new office space in Winnipeg.

If new construction is not driving the increase in land values, what is?  It is being driven by the nemesis of our downtown: surface parking.  Monthly rates for surface parking have risen dramatically over the past five years, and it is now common to pay $120 to $130 per month for a surface parking space. This monthly charge for daytime parking, coupled with charges for evening and weekend parking, supports a purchase price of $50 per square foot for vacant urban land.

With this formula for land valuation, maybe everything is OK – the market is determining value, and supply and demand are in a nice neat balance.

But everything is not OK.

Rents for commercial space are established on the basis of what the market will bear.  If a project costs too much to build, and if market rents do not pay the costs of development and reasonable profit, projects do not proceed. The main “hard” costs for a project are for land and construction.   Within this framework, land costs are a set percentage of project development costs.  Higher land costs must be dealt with by building larger buildings to keep the percentage of project costs assigned to land acquisition in balance.  In private-sector development, higher land costs demand either higher rents or taller buildings.

At $25 to $35 per square foot, land costs constitute an appropriate proportion of project development costs for a five-or-six storey building.  Land costs of $50 per square foot demand a 10- to- 12-storey building. Although the Winnipeg market may be able to support smaller projects, the city does not have adequate demand to warrant a very large number of 10 to 12 storey buildings.

So private-sector downtown development sits at a standstill , or at a state very close to a standstill.  The price of land is simply too high for the construction of buildings appropriate to Winnipeg’s market.


Development is easier outside of downtown, where taxes and land costs are lower, and this is where the majority of our private-sector construction is occurring.  This development on the city’s outskirts is cheaper in microcosm, but creates an expensive burden for the taxpayer.

New ex-urban buildings require new municipal services, while existing downtown services remain untapped.  Surface parking generates much lower tax revenues than even modest-scale buildings. And the economic and tax spin-offs from a diverse, developed downtown remain a day dream.

The negative economic impact of surface parking lots should be recognized in our municipal tax structure.  Downtown surface parking lots should be assessed taxes that reflect their true cost to the public purse and to Winnipeg’s economy.

This taxation would make surface parking less attractive to investors, and it would likely result in a re-alignment of land values to reflect real development potential (in the short term, land value would probably go down). This would in turn make real downtown development viable.

Just in case this is read as a diatribe against parking of any sort, it should be understood that an aggressive tax policy targeting surface parking would encourage construction of multi-storey parking structures, which are a viable investment at current monthly rates.

Originally published in Winnipeg Free Press, Sunday, May 15, 2005

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s