Saskatoon, January 30, 2014
Colliers International hosted its 11th annual Commercial Real Estate Review and Forecast at the Sheraton Cavalier. The discussion focused on the economic activity, trends and projections for the commercial real estate industry for 2013 and 2014.
“2013 marks yet another successful year for commercial real estate in Saskatoon,” says Tom McClocklin, President for Colliers Saskatchewan. “We forecast that 2014 will follow suit for both Saskatoon and Saskatchewan.”
Nearly all asset categories posted strong growth, with the majority of new space in suburban office and industrial development in the Marquis Industrial area.
Suburban development is becoming an increasingly popular trend amongst Saskatoon office tenants, as there were more than 65,000 square feet of competitive office space completed in 2013, with 60,000 square feet of office space under construction in the Stonebridge area.
"Suburban office development has provided an alternative to tenants whose operation is not tied to the synergies of downtown office space," says McClocklin.
Over the past five years, the Stonebridge office area has grown in excess of 200,000 square feet. As a result, the downtown core of Saskatoon is experiencing a transition as some tenants opt for suburban areas instead of the traditional downtown office settings. Vacancy for the downtown rose to 5.65% in 2013 and it is estimated that the vacancy rate will further rise above 8% when Saskatoon Police Services consolidates to their new location on 25th Street East.
Notable office leases for 2013 include K+S Potash leasing the entire, newly built 220 Wall Street building, as well as the City of Saskatoon’s purchase of the Vecima building, with Vecima relocating to the old Bayside building on the corner of 23rd Street East and 2nd Avenue North.
Saskatoon added over 440,000 square feet of industrial space with an additional 260,000 square feet still under construction. Nearly all of this space was built on speculation. Saskatoon’s absorption is consistent with the previous year at just under 600,000 square feet; however, nearly half of the leased space is accounted for by two transactions.
"Based off of historical figures, there is approximately two years worth of new industrial space available on the market today," says McClocklin. "With more space scheduled for completion in the next six months, I think it is going to take some time for the market to adjust to the influx."
Rental rates are expected to remain stable at $11 to $13 net per square foot, but there may be more flexibility in incentives offered by landlords. “Construction costs are keeping industrial rates up, but we may see some more creative leasing with the increased competition amongst landlords," comments McClocklin.
The retail market in Saskatoon continues to be the most consistent asset type, with vacancy falling from 2.4% in 2012 to 1.8% in 2013. “There have been 15 new restaurants added to the downtown core in the last 18 months, including Ayden's, Bon Temps and State & Main, ranging from local owners to national chains,” cites McClocklin.
Retail on 8th Street continues to be the most sought-after opportunity in Saskatoon, with rates rising beyond $40 net per square foot for top tier space. In contrast, Circle Drive (42nd Street East) continues to struggle with above-average vacancy. Notably, Riversdale rental rates made the biggest climb: Whereas two years ago, they ranged between $10 to $12 net per square foot, now asking rates are above $18 for some spaces. "The rise in rental rates is an indication that Riversdale is well on its way to becoming an established neighborhood," says McClocklin.
Saskatoon's latest retail development is underway at Preston Avenue and Circle Drive. The development lead by North Ridge will be 144,000 square feet and anchored by a 58,000-square-foot Sobeys, a 10,000-square-foot liquor store and a Shoppers Drug Mart.
Saskatoon retail-zoned land remains tight. As such, tenants and developers alike are pursuing secondary markets in Martensville and Warman. Martensville recently announced plans for a Canadian Tire at Black Iron Crossing, while Warman gained a Coop Grocery store and Gas Bar, with additional plans for the future.
“Overall, 2014 is forecast to be yet another strong year for Saskatoon’s commercial market,” concludes McClocklin.