Saskatoon CRE: calm waters create unpredictability in real estate market

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I think it’s fair to say that uncertainty in oil and other resources revenue streams do play a role in the work of decision makers in commercial real estate; their motivation to buy, sell and lease in the Saskatoon market. Given recent events, I’d like to explore the current mood in all sectors of our commercial real estate market.

Calm before the storm?

To borrow from a senior agent in our office, the market may best be described as holding steady in “calm waters.” The stillness makes it difficult to predict where markets are heading as it gives no indication of slowing down or speeding up.

Typically sellers liquidate when fear exists. We see no evidence of that happening. The voracious appetite of buyers has slowed somewhat for the time being. Buyers are pickier and sellers aren’t giving anything away.

This creates a market where in some cases product simply doesn’t move. It makes it hard to bring buyers or sellers to the table and can create vacancy that sits longer despite being categorized as good, leaseable inventory.

I think the vacancy rates are the best indicators of what’s currently happening in our market across the office, retail and industrial sectors:

Office

As of mid-January 2015 the office inventory in Saskatoon sits at 7.49 per cent downtown and 8.84 per cent in suburban. In both markets, there are pockets of sublease product that have come onto the market and have yet to be absorbed.

Much of the sublease space can be attributed to office users who changed locations or built new. The properties these users vacated remains available though not part of our traditional vacancy reporting.

There is very little under construction at present in downtown or suburban office. Like other sectors of our commercial real estate market in Saskatoon, we expect the current inventory of newer construction to absorb accordingly over the next year.

Industrial

The adjusted industrial inventory sits at approximately 6.17 per cent as of the beginning of the new year. A modest new supply of 133,732 sf remains on the market with an estimated 109,256 sf under construction.

Total industrial inventory for Saskatoon now hovers around 17.9 million square feet. While absorption has yet to catch up with the newer northend properties, we are still entertaining incredibly low vacancy rates in industrial areas such as Agriplace (.73 per cent), Airport (1.65 per cent), and South West (2.84 per cent).

Retail

With what can be described as our under-retailed market, it will come as no surprise that this sector shows the best figures so far in 2015. With an overall vacancy rate of 3.01 per cent, the market continues to be competitive in both options and pricing.

Historically the retail inventory hasn’t extended over 3.5 per cent since 2005, with 2011 showing the lowest level in recent years around 1.5 per cent. The addition of new construction in 2014 has not slowed the pace whatsoever.

New suburban centres have very little vacancy: Blairmore sits at 2.33 per cent and University Heights at 1.75 per cent. 8th Street has approximately 3.41 per cent in available inventory.

Look into my crystal ball

I subscribe to the theory that while momentum may have slowed a little, the market is still moving upward. Some economists are predicting any real hurt, should it arrive, will come in 2016.

This may mean tightening the budget at the provincial level first. It is reported that the government has already begun to draft a downsized budget for its March 2015 release.

Beyond that, the province continues to attract people and unemployment remain low. All signs, I believe, point to continued progress in Saskatchewan. Do you agree?

Posted by Kelly Macsymic

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