Shining sector re-emerges in YXE commercial real estate

After reaching a record high vacancy rate of 10.3 per cent in 2016, the multi-family sector has rebounded.

The latest CMHC report, which was just released, indicates as of Oct 2019 that rate dropped to 5.7 per cent. That’s a significant decrease in just three years, 4.6 per cent to be exact, despite a rising supply of new rental units.

What contributed to the turn around?

There are three major factors that contributed to absorption exceeding the new supply.

The report indicated between January and September of 2019, there were 5,600 mostly full-time jobs added to Saskatoon’s economy.

Many households turned to rental accommodation due to the federal government’s introduction of more stringent mortgage qualification rules.

International migration was the main contributor to population growth in Saskatoon which accounts for the third factor

What’s happening to rental rates?

The average rent increased 2 per cent over 2018 to $1,046 per month.

That average breaks down to $722 for bachelor suites, $930 for one bedrooms, $1,129 for two bedrooms and $1,280 for three bedrooms.

This is the second consecutive year that rents have increased.

As you might guess, condominiums command higher rents due to the additional amenities they typically have to offer

One challenging area remains

The 2019 report indicated Saskatoon Southwest is still struggling with a vacancy rate in excess of 12 per cent.

Of the nine areas within the report, the two reporting the next highest are Central which is just under 7 per cent and North which is just over 7 per cent.

In contrast to the Southwest with the highest, as you can see by the following graph, the west has the lowest vacancy at 2.5 per cent.

With a drop of 2.6 per cent in the Saskatoon apartment vacancy in just one year (in spite of an increase of 477 units on the market) and following the trend of the last three years,  I feel pretty safe in projecting that CMHC will be reporting an average rate of under 5 per cent in their fall 2020 Market Update.

This trend of continued absorption, depending upon the amount of new construction, is likely to place continued pressure on rental rates.

Posted by Barry Stuart

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