A solution to Saskatoon’s downtown office vacancy

Managing Partner and Senior Sales Associate , ICR Commercial Real Estate
  • May. 15, 2019
IMAGE: River Landing in Saskatoon. (Rendering courtesy Triovest)

River Landing in Saskatoon. (Rendering courtesy Triovest)

As reported in our first-quarter Saskatoon office survey, we currently have over 400,000 square feet, or 16.7 per cent vacancy, in our competitive Saskatoon downtown office market.

Those numbers include the vacancy within River Landing’s 185,000-square-foot East Tower, which is nearing completion. The numbers do not, however, reflect 40 per cent of the space yet to be leased within the 300,000-square-foot Nutrien Tower which just recently started construction.

Once that additional vacancy is accounted for, we will be reporting core area vacancy in excess of 20 per cent.

Saskatoon’s office market is in transition. The demand for new class-A inventory is coming from users already present.

There are not enough new tenants entering the market and the “flight to quality” is projected to continue.

Let’s talk solution.

A solution exists

A common solution that often enters the conversation is simply “reduce rental rates.”

There is another option that provides a more permanent fix. That solution is repurposing class-C buildings into either hotels, residential rentals or residential condominiums.

Class-C buildings are best suited because they typically have the lowest cost base, possess the most inherent functional obsolescence, and will therefore be most affected by this transition.

We are still a few years away from returning to the highs in revenue per available room that we last saw in 2014 in the Saskatoon hotel sector. Therefore, hospitality conversion is not likely.

However, the City of Saskatoon is keen to see an increase in residential density within the core area and offer incentives to encourage repurposing of existing vacant property.

Herein lies the logical solution.

Let’s look to Regina as an example

We researched Regina, where the office sector represents around 50 per cent of total commercial real estate development (Saskatoon’s office sector is close to only 25 per cent of the total inventory).

We estimate that since 2000, there has been approximately 375,000 square feet of office space repurposed to residential use (1803, 1867 & 1914 Hamilton St., 1839 Scarth St. and 1901 Victoria Ave).

That represents almost our entire current vacancy.

I don’t represent this to be an easy solution. It requires relocation of existing tenants and a significant commitment of capital.

But, we see ongoing chronic vacancy in class-C office property. The options are to do the work and pay the price now, or endure the pain for many years to come.

Another issue worth mentioning

I know I said I was going to talk “solution” but as a final note I just couldn’t miss this opportunity to rant a bit about Innovation Place. Its website states: “Innovation Place helps grow Saskatchewan’s tech sector and provides a supportive environment for start-up and early stage technology companies.”

There is truth to that statement. As a university-related technology park, it serves a useful purpose to our education and business communities.

Where the disconnect takes place is that they’ve approved occupants such as engineering firms which would be much better suited to downtown office buildings.

Firms which, if not permitted to occupy space in Innovation Place, would have gone a long way toward fixing our current downtown vacancy issue.

It is a mistake made by a previous provincial government which has not yet been fixed by any subsequent administration.

I welcome your comments, or any thoughts you may have on other potential solutions to the challenge we face in core area office vacancy. This issue, without intervention, will be with us for some time.

Barry has been with ICR since 1996 and is at the heart of ICR’s ongoing corporate growth. His primary focus is origination and execution of commercial real estate sales throughout…

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Barry has been with ICR since 1996 and is at the heart of ICR’s ongoing corporate growth. His primary focus is origination and execution of commercial real estate sales throughout…

Read more

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