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.
Numbers don’t lie
Our Regina 3Q21 Market Survey reported a vacancy of 4.06 per cent while that number in Saskatoon was 4.16 per cent
I believe a commercial real estate vacancy rate of less than 5 per cent reflects a healthy market.
With these rates now getting very close to 4 per cent, we have moved to a market where the Landlord will start to dominate rate and term negotiations.
Similar but different
There was one major difference between the two markets in 3Q21.
Saskatoon absorbed almost twice as much warehouse as Regina. This somewhat reflects the size of the overall industrial inventory in each city.
We estimate Saskatoon’s total current industrial inventory to be 24.8 million SF whereas Regina’s is 18 million SF.
What’s driving this strength?
Motivation is high
Over the past six months, we’ve seen unprecedented announcements totaling $10 billion in Saskatchewan industrial expansion.
Despite the province having to introduce new restrictions in the third quarter of 2021, the industrial market has been strong and stable throughout the pandemic.
We expect this sector to dominate our provincial commercial market for the foreseeable future.
We see specific tenant requirements surfacing and much of the existing product available on the market does not accommodate those requirements.
There are certain square footage categories of the market where more void exists than others.
No crystal ball predictions
We’re in interesting times.
For a developer to justify constructing new space; after land and building cost increases and new building codes are factored in, the net lease rate needs to increase 20 per cent over the existing rents.
Companies who will benefit from this new industrial expansion, will need to calculate the increased efficiency that can be gained from improved building design.
In some cases, the cost effectiveness of bringing multiple locations under one roof can alone justify these new rates.
It’s important for occupants to realize the benefit of optimizing use of not only the floor area, but the cubic capacity of a warehouse’s space as well.
Be sure to reach out if you’d like to obtain a copy of the full reports.
Posted Barry Suart
