Positive yet mixed signals in Saskatchewan industrial

There are three significant numbers I’m looking at to determine the sentiment of the industrial real estate market.

One of those numbers is positive, and two illustrate we have yet a way to go before we’ve fully recovered.

Saskatoon vacancy rate

Our 1Q19 market reports have just been released. Although each of the 8 areas we report on vary, the overall Saskatoon vacancy rate has dropped 6.8 to 6.5 per cent.

Although that change may seem small, it has in fact been trending lower since its peak in 2016.

A factor which has contributed to this reduction is the limited amount of development activity.

Less than half the number of building permits were issued in 2018 as compared to the previous year and that trend has continued so far in 2019.

That restraint on development provides for a much-needed reduction in the existing oversupply.

Saskatoon average asking net rental rate

It is difficult to statistically track tenant incentives which can include free rent and tenant improvement allowances.

We do however track average asking net rental rates and there has been a softening of those industrial rates.

The current average is $10.64 which is down $0.38 from a year ago.

Saskatoon sale price per square foot

Looking at the average sale price per sq ft for industrial buildings can be a somewhat simplistic way of comparing values.

When completing a full property valuation, we isolate the land component and other property variables to determine a current market value.

It can however be a valuable average indicator when grouping sales over a specific time period.

With that in mind we have seen a drop in the price per square foot for industrial land and building sales from an average of approximately $150 psf two years ago to $130 today.

Regina’s picture looks quite different

The total current industrial vacant space in Regina at the end of 1Q19 is 882,000 sq ft.

Compare that to Saskatoon’s vacancy of 1,545,330 sq ft. Regina’s industrial sector is a smaller percentage of their overall commercial real estate. It is nonetheless currently healthier than Saskatoon’s.

They have reached that “under 5 per cent” sweet spot. Over a two-year period, it has dropped over 200 basis points to 4.72 per cent.

Over that same period, the average asking net rental rate has dropped from $11.50 to $11.04.

Like Saskatoon, it’s not common to see a reduction in rental rates at the same time vacancy is dropping.

It is likely that with a vacancy rate of under 5 per cent, the average asking net rental rate will now stabilize.

Feel free to contact me if you’d like a full copy of our recently released 1Q19 Saskatoon and/or Regina Industrial Market Report.

Posted by Barry Stuart

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