It’s interesting to see the similarity in industrial vacancy rates in Regina and Saskatoon that has been revealed in ICR’s latest market update.
The difference in vacancy rates between the two cities, in this sector, is less than 10 basis points. You must go back to 2010 to find similar strength in absorption of vacant industrial property.
Our Regina 3Q21 Market Survey reported a vacancy of 4.06 per cent, while that number in Saskatoon was 4.16 per cent
I believe a commercial real estate vacancy rate of less than five per cent reflects a healthy market.
With these rates now getting very close to four per cent, we have moved to a market where the landlord will start to dominate rate and term negotiations.
Regina and Saskatoon: Similar but different
There was one major difference between the two markets in 3Q21.
Saskatoon absorbed almost twice as much warehouse space as Regina. This somewhat reflects the size of the overall industrial inventory in each city.
We estimate Saskatoon’s total current industrial inventory to be 24.8 million square feet, whereas Regina’s is 18 million square feet.
What’s driving this strength?
Motivation is high
Over the past six months, we’ve seen unprecedented announcements totalling $10 billion in Saskatchewan industrial expansion.
Despite the province having to introduce new restrictions in the third quarter of 2021, the industrial market has been strong and stable throughout the pandemic.
We expect this sector to dominate our provincial commercial market for the foreseeable future.
We see specific tenant requirements surfacing and much of the existing product available on the market does not accommodate those requirements.
There are certain square footage categories in the market where more void exists than others.
No crystal ball predictions
We’re in interesting times.
For a developer to justify constructing new space, after land and building cost increases and new building code requirements are factored in, the net lease rate needs to increase 20 per cent over existing rents.
Companies which will benefit from this new industrial expansion will need to calculate the increased efficiency that can be gained from improved building design. In some cases, the cost effectiveness of bringing multiple locations under one roof alone can justify the new rates.
It’s important for occupants to realize the benefit of optimizing use of not only the floor area, but the cubic capacity of a warehouse’s space as well.
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