Saskatoon industrial market far exceeds my 2021 prediction

I was a bit off the mark!

One year ago, I predicted that the Saskatoon Industrial vacancy rate would slip under 5 per cent by year end.  It was sitting at 5.32 per cent at that time. 

We’re just about to release our 4Q 2021 market reports which will show that the average industrial vacancy rate declined by 1.33 per cent to 3.99 per cent.

With a positive net absorption of 42,147 SF quarter over quarter, that rate of decline accelerated after a 1.23 per cent drop that took place over the two previous years.

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Why you should sell your Commercial Real Estate now

There has never been a better time to cash-out of your Saskatchewan industrial and retail commercial real estate.

While there is currently demand from owner occupants for office buildings, that demand however is not the same for multi-tenant office due to typically higher vacancy in that particular asset class.

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Lowest SK industrial vacancy in over a decade

It’s interesting to see the similarity that has been revealed between Regina and Saskatoon through ICR’s latest Market Update.

The difference in vacancy rates between the two cities, in this sector are less than 10 basis points.

You must go back to 2010 to find similar strength in absorption of vacant industrial property.

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How to de-risk your spec CRE build

As a brokerage, we track existing and new developments in each commercial sector and thereafter advise clients when and what to build.

For this discussion I’m going to focus on the Saskatoon industrial market.

As a brokerage, we track existing and new developments in each commercial sector and thereafter advise clients when and what to build.

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Saskatoon’s commercial real estate markets demonstrate resiliency

We’ve just released our 2Q21 market surveys and all three sectors are reporting a reduction in vacancy.

Remarkable statistics considering the economic storm we’ve been passing through!

It appears that our resource rich economy is only going to continue to improve with the recent upcycle in commodity markets.

International demand for food, fertilizer and fuel have turned the corner after a slow 2020.

Let’s take a look at each sector individually.

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Vacancy does not equate to desperation

It’s easy to get skeptical about leasing commercial real estate with all the media reporting business doom and gloom during the pandemic.

Well I’m here to tell you, not only is their rising hope on the horizon but things aren’t near as dicey as some think.

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Surprisingly little correlation between interest rates and cap cates

Any discussion on cap rates needs to be prefaced with a cautionary note. 

That is, there are many factors that determine capitalization rates on a commercial real estate investment. 

Those factors include but aren’t limited to age and condition of improvements, covenant of tenants, term of leases, location, asset class and the tenant mix.

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Saskatoon sees lowest quarterly drop for industrial vacancy in over a decade

While we saw quarter over quarter decreases throughout 2020, the drop in Saskatoon’s industrial vacancy for the last three months has exceeded my prediction for the entire current year.

The industrial sector has seen a net absorption of almost 150,000 square feet (SF).

In January, I forecasted we would be at 4.8 per cent by year end.

Our recently released Industrial Market Report recorded that rate had already dropped to 4.71 per cent. That represents over a 60-basis points reduction within one quarter.

My review of the market stats would indicate that is the largest quarterly drop we have seen in over 10 years.

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Density can’t come at the expense of massive property devaluation

Cities are becoming increasingly aware of the need to densify.

The infrastructure costs of suburban sprawl are not recoverable.

No one is prepared to pay the real costs that are imposed upon most city services because of continued expansion of suburbia.

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My predictions were wrong (but cut me a little slack!)

I promised you that I’d hold myself accountable in my Jan 2020 post and report back to you. 

So, how did I do? At that time, I predicted a decline in the overall Saskatoon industrial vacancy rate from 5.65 per cent per cent in 2019 to 4.8 per cent.

That’s after a significant 2 per cent decline in 2018 and a 0.9 per cent decline to 6.8 per cent in 2019.

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