Industrial Sales Drive Saskatoon Commercial Real Estate Market: 2023 Report

A dramatic increase in several asset classes have contributed to robust activity in commercial real estate in Saskatoon during the first quarter of 2022, according to the new 2022 Commercial Real Estate Report from RE/MAX Canada. Multi-family residential, industrial and farmland properties are experiencing unprecedented growth at the cusp of what is expected to be the most significant economic expansion in Saskatchewan in decades.

With immigration forecast to climb in the province, the multi-unit residential asset class has soared, with prices climbing from $95,000 to $98,000 per door to $130,000 in a relatively short period of time. Institutional and private investors from Ontario are responsible for the lion’s share of activity in this segment of the market. Despite higher interest rates, cap rates remain unchanged at five to six per cent.

Shortages of commercial real estate in Saskatoon exist across the board, but supply is particularly tight for larger, two- and three-bedroom units. Rental rates have climbed in tandem, up about $200 per unit for a one-bedroom, and $300 per two-bedroom, now sitting at $900 and $1,100 respectively. Re-purposing is underway in older buildings, while newer units under construction will need to fetch between $1,500 and $1,800 per unit in order to be profitable.

REITS are active in the industrial market, but demand continued to outpace supply in the first quarter of 2022. Vacancy rates have been trending downward and currently sit at under three per cent. Lack of inventory—especially in the Southwest and Marquis Industrial Parks—is placing upward pressure on lease rates. Little new inventory is expected to come on-stream, which should cause vacancy rates drop yet again. With little land or new product on the market, investors are looking to infill in industrial-zoned areas to fill the gap, with an eye to demolishing existing structures and rebuilding. Given the uptick in interest rates and construction costs, return on investment would need to make sense.

With commodities prices escalating rapidly due to the situation in the Ukraine, the price of farmland is hitting record levels in areas like Estevan and Weyburn. Land that sold for $2,400 an acre recently is now seeing upward of $3,000. Eighty-six grain farms were listed for sale in April when normally, 300 would easily be available*. One listing, a 309-acre grain farm, is priced at $15.9 million. The most expensive sale on record was for $32 million. With heated demand for farmland throughout the province, fewer private deals are made amongst farmers. Multiples offers are now commonplace and realtors have turned to auction services that increase exposure to a North American marketplace.

Retail strip malls are also exceptionally popular among investors in commercial real estate in Saskatoon—with future mixed-use development possible down the road. New retail development in subdivisions that are under construction is sought-after by end users and tenants. Financing remains a challenge, particularly for smaller investors, due to a lack of comparable properties. For those seeking financing, the province’s credit unions are the best source at present.

Office space is the one segment that continues to face challenges. The completion of the new River Landing Tower has drawn major companies from older locations in the core and contributed to higher vacancy rates. While there is an ample supply of office space available in the core, the decline in rental rates has been nominal. Landlords are offering inducements on space in the downtown area. Suburban office locations have been much more popular, especially in key locations such as University Heights, and the South East.

Saskatchewan’s projected growth numbers show that the province has much catching up to do, with GDP growth expected to perform well above the national average at 5.7 per cent** in 2022. High commodity prices in the resource-rich province should bode well for the Saskatoon commercial real estate market, as more investors, both large and small, enter the market in multiple asset classes to cash in on Saskatoon’s affordable price point and potential for growth.

* Saskatchewan REALTORS Association

** RBC Economics, Provincial Outlook, March 10, 2022