Our latest 3Q17 market report shows a very slight increase of 10 basis points to 8.1 per cent in Saskatoon’s overall industrial vacancy rate.
This very marginal change does not alter our belief this market has stabilized. Both Marquis and North Industrial areas which are by far the largest warehouse districts in the city did decline in vacancy to nine and 5.6 per cent, respectively.
With year-to-date absorption of -29,970 square feet (SF), there is currently 1.9M SF of industrial inventory available for lease.
The historical vacancy chart accompanying this article graphically illustrates two- to three-year market cycles.
Overview of market factors
Although there are many market factors that can cause these cycles, there are several forces behind the fluctuation we’ve seen.
When the economy is healthy, surplus investment dollars need to find a home. Because more than 50 per cent of the commercial real estate in Saskatoon is industrial, speculators can view it as a market that will perform well over the long term. Too many surplus investment dollars can very quickly translate into too many speculative projects.
When global demand for three of our main provincial resources – oil, potash and uranium – dropped significantly at the same time, it had a profound effect on our industrial sector absorption.
A lack of particular product will affect this supply/demand cycle.
Tailor development to demand forecasts
Three years ago, we saw a shortage of smaller free stand buildings suitable for new businesses.
Brokers and developers moved to fill that demand by bringing new industrial condominiums to the market. Demand started tapering at the same time production was ramping up.
As brokers, we are seeking ways to minimize these cycles. We now closely track industrial land sales and building permits to better forecast supply and absorption
Recent information gathered from the Saskatoon Land Asset and Financial Management Department indicates only seven building permits totalling 117,270 SF have been issued within the Marquis Industrial Area in 2017.
One of those permits was for 15,200 SF of retail development within Matrix Business Park.
Existing inventory being absorbed
The remaining permits were issued for mostly owner occupant industrial buildings ranging from 7,600 to 25,000 SF.
This slower construction activity is what we’re looking for to allow further absorption of existing inventory.
Before considering future speculative industrial development, think about engaging a commercial real estate broker to help you determine if the time is right.
Forecasting the current and future demand for the specific building design you have in mind is critical for the success of your project.