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There are three significant numbers I’m looking at to determine the sentiment of the industrial real estate market in Saskatchewan.
One of those numbers is positive, and two illustrate we have yet a way to go before we’ve fully recovered.
Our Q1 2019 market reports have just been released. Although each of the eight areas we report on vary, the overall Saskatoon vacancy rate has dropped from 6.8 to 6.5 per cent.
The change might seem small, but 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 compared to the previous year. 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 square foot 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 per square foot two years ago to $130 today.
Regina’s picture looks quite different
The total vacant industrial space in Regina at the end of Q1 2019 was 882,000 square feet.
Compare that to Saskatoon’s vacancy of 1,545,330 square feet. Regina’s industrial sector is a smaller percentage of its overall commercial real estate, but is nonetheless currently healthier than Saskatoon’s.
It has reached that “under five 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 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 five per cent, the average asking net rental rate will now stabilize.
Feel free to contact me barry.stuart@icrcommercial.com if you’d like a full copy of our recently released 1Q19 Saskatoon and/or Regina Industrial Market Report.
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