Big divide between YXE downtown & suburban office vacancy

This Saskatoon office vacancy graph illustrates it well.

We see the relative similarity between downtown and suburban office vacancy trends for the 12 years between 2008 and 2020; then, suddenly, in 2020, the divide begins to swell.

We currently have over a 10 per cent vacancy spread between the two submarkets.

Is Downtown Stigmatized?

Saskatoon Tribal Council’s Saweyihtotan Outreach Program and the Saskatoon Community Support Team, in partnership with the Saskatoon Police, have positively impacted those struggling with addiction and homelessness.

I see an unprecedented effort, evident at all levels of civic and provincial administrations, to provide solutions for a safe core area.

Progress is being made; however, we have a long way to go to dissolve the negative view of the downtown area.

Cost difference

Our most recent ICR Parking Survey indicates the average monthly rate for a paved downtown surface stall averages $200 per month.

Whether an employee or the employer is paying for that cost it’s a consideration when looking at office options. Typically there is no cost for suburban office parking.

Our 2Q22 Office Vacancy Report indicates the average occupancy cost for downtown office is $14.25 PSF.

The average of the eight other office submarkets is $9.74 PSF That’s a difference of $4.51 PSF. *

On a 5,000 SF office, that difference amounts to $22,500 per year.

When you factor in the additional parking costs, the attraction to suburban office becomes evident.

The Industrial Market is a Factor

The latest 2Q22 Industrial vacancy numbers show an average of 2.52 per cent vacancy.

I could generalize and say that while downtown tenants generally fall into the engineering, accounting, law, etc., business, the suburban office occupant can be closely aligned to the industrial sector.

Trends in Other Markets

My research indicates a similar trend towards this divide in other urban markets.

For unknown reasons, Saskatoon’s difference in numbers may have started a bit earlier than other cities.

However, one should not be quick to write off downtown areas.

With offices slowly resuming face-to-face operations, downtown spaces are expected to be back in demand.

Our 2Q22 Office Market Study Report states, “The Saskatoon office market is at the beginning of a seven-year reset cycle.”

“Businesses are returning to their spaces slowly and cautiously, while at the same time, employers are developing and implementing models for hybrid work. Both employers and Landlords must adapt to new models and experiences of office work categories.”

* It’s important to note that the cost of heating and electricity can often be included in downtown office occupancy costs. In contrast, they are more commonly paid separately by the tenant in a suburban office.

Posted by Barry Stuart

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