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Saskatoon industrial market far exceeds my 2021 prediction

I was a bit off the mark! One year ago, I predicted the Saskatoon industrial vacancy rate would s...

I was a bit off the mark!

One year ago, I predicted the Saskatoon industrial vacancy rate would slip under five per cent by year end. It was sitting at 5.32 per cent at that time.

We’re just about to release our 4Q 2021 market reports at ICR Commercial, which will show the average industrial vacancy rate declined by 1.33 per cent to 3.99 per cent.

Economic forecast, and industrial performance

With a positive net absorption of 42,147 square feet quarter-over-quarter, that rate of decline accelerated after a 1.23 per cent drop that took place over the two previous years.

TD Economics is forecasting continued strong growth in 2022 with 3.4 per cent GDP and the unemployment rate dropping to 5.5 per cent.

Despite the strength demonstrated in this sector, there were only seven building permits totalling 73,041 square feet issued in the Marquis industrial area in 2021.

There are already shortages of lease options in a few size categories in the warehouse sector. I believe we are fast approaching a critical situation where there will be a significant undersupply for tenants needing to expand in 2022.

There is currently a six- to eight-month lead time to order steel. That means a developer needs to place an order 12 to 16 months before anticipated project completion. Many tenants don’t plan that far ahead.

It’s going to be an interesting year.

What’s my prediction for 2022?

I see a record-setting vacancy rate under three per cent by the end of the year.

Not only do we have a supply issue, but inflation has impacted building costs significantly.

This will result in an increase in our average asking net rental rate from $11.41 per square foot (PSF) to well over $12 PSF.

In order for a developer to realize a reasonable return on investment, new shell space needs to be priced close to $14 PSF net.

I will report back to you in 12 months with a debrief of my 2022 predictions. You can hold me accountable!

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