Despite a year of pandemic disruption, Saskatchewan’s office and retail vacancy and lease rates have remained relatively stable, attendees at the 2021 Saskatchewan Real Estate Forum heard on May 6.
Industrial vacancies have declined to below five per cent over the past year.
Barry Stuart, managing partner for ICR Commercial Real Estate,, said Regina’s downtown office vacancy rose slightly. His figures indicate the rate in 2020 was 13.02, edging up to 13.27 in 2021. The suburban market rate also increased to 12.6 per cent.
In Saskatoon, the vacancy rate stayed nearly flat at slightly over 15 per cent. Stuart pointed out the sublease market, which had been five per cent of overall downtown vacancy, increased to 15.8 per cent.
Aaron McDougall, vice-president of leasing for Harvard Developments, said that while the rest of Canada has seen vacancy rates rise due to COVID-19, Saskatchewan has not seen the same impact. Changes have been more locally driven.
Harvard has 1.3 million square feet of office space in the province, he said.
Nutrien Tower to cause Saskatoon space shuffle
Saskatoon will be dealing with a large increase in inventory when the Nutrien Tower brings on 140,000 square feet of space by the end of this year, said McDougall (anchor tenant Nutrien has committed to about half of the 279,000 square feet of space in the 18-storey, third tower at the River Landing development).
In Regina, major employers Canada Life, the provincial government and SaskPower have returned office space for reasons unrelated to the pandemic.
However, he doesn’t think the vacancy rate will change radically.
“I think in five years we’ll still be talking about vacancy rates above 12 per cent,” said McDougall.
Craig Bell, chief operating officer, executive vice-president and portfolio manager for PIC Investment Group, said the cities will see some shuffling but there’s unlikely to be any large new tenants.
He did say, however, there are predictions the province is about to come out of the trough in commodity prices, which would lead to engineering firms taking up additional space.
Bell said he doesn’t see lease rates increasing and said they may begin to decline on older offices.
Office lease lengths shorter
One thing the pandemic is having an impact on is lease lengths, as tenants try to determine if the work-from-home trend will continue post-pandemic. Speakers agreed 10-year lease deals are now rare, with tenants seeking two- or three-year deals.
However, they agreed quality office space will remain in demand.
One of the biggest current challenges for the commercial real estate market is the cost of construction, with material prices escalating quickly during the past year. That makes it difficult to estimate project costs and set lease rates, speakers said.
“If you have a pressure-treated 2×4 delivered, you’re putting it in your vault because you can’t afford it next week,” said Geoff Nagle, director of development for Morguard Investments. “We’ve had a 300 per cent increase at a retail level on a 2×4 during COVID.”
Bell said his firm has had interest in its industrial land from companies looking for build-to-suit, but input costs are a concern since it’s difficult to set a lease rate to get a decent return.
Industrial, retail in Saskatchewan
Vacancy rates on industrial in both Saskatoon and Regina are below five per cent for the first time in 10 years, said Stuart.
COVID has created uncertainty for the retail sector, but speakers remained optimistic about the prospects for brick-and-mortar stores.
Stuart’s figures show no large movement in either retail asking rate or vacancy in the two main city centres. Regina’s vacancy ticked up slightly from 6.4 to 6.7 per cent, while the rate in Saskatoon declined from 5.5 to 5.18.
Speakers said the big box category has done quite well. McDougall said Harvard Developments, which has close to two million square feet of Saskatchewan retail, had a bit of trouble backfilling a 34,000-square-foot space vacated by Home Outfitter.
However, he said there are good opportunities for vacant big boxes on good arterial roads.
Speakers felt the vacancy rate in retail is likely to remain where it is. McDougall said leasing rates are very deal-specific but definitely aren’t going to go up.
Nagle added retail is a constantly changing asset class. He cited his firm’s recent experience with tenants working with his firm on new construction – one a restaurant and one a liquor store.
Despite being in the same category, the restaurant needed to halt construction during COVID, while the liquor store required fast-tracking.