Vacant parking lots sign of times in downtown

It’s a few minutes before 8 a.m. and about a dozen people are standing in the empty lot on the corner of 25th Street East and Second Avenue North, their shoes crunching the gravel and their shoulders hunched against a sharp September breeze.

Similar scenes play out every morning across downtown Saskatoon as people wait in line to pay a median of $150 per month to park their cars and trucks on the vacant lots that punctuate the city’s core.

When the Patricia Hotel was torn down in 2013, its owners said they would wait until “the dust settles” before unveiling plans for a new development at the site.

Three years later, the lot on the corner of one of Saskatoon’s busiest intersections has been converted into a parking lot and its owners are still waiting for an opportunity to develop it. It could take time.

“I don’t think any big developers are really jumping at anything with the status of the way things are,” said David Bakonyi, a spokesman for the Vancouver-based investors who bought the hotel and bar before demolishing it weeks later.

Roughly 26 per cent of all downtown land consists of vacant parking lots, which allow landowners to hang on to valuable property without losing money. That’s a potential problem, says Duncan Mayer, research manager at Colliers in Saskatoon.

“In a lot of cases, the revenue that they’re generating from the parking de-incentivizes them to take the risk and build on speculation, especially given the prevailing market conditions,” Mayer said.

Those market conditions, combined with the cost of construction, are real barriers to development in downtown Saskatoon. Without a strong economy, Mayer said, there are no tenants to fill new spaces.

During the last five years, falling potash, uranium and oil prices have eroded the city’s commercial real estate market, pushing small companies into cheaper suburban office space or out of business entirely and causing the vacancy rate to spike.

Last month, Colliers said almost 16 per cent of the city’s downtown offices were empty, up sharply from the near-record low of two per cent recorded in 2011. The commercial real estate firm expects that rate to remain stable through the end of the year.

“Even in a hot market, Saskatoon is more cautious,” Mayer said. “Here we don’t typically see a lot of spec developments. Most developers are more comfortable if they have 30 per cent of their building spoken for before they begin construction.”

Four months after the Patricia Hotel was reduced to a pile of rubble, crews began demolishing another building three blocks south on Second Avenue that housed a popular — and controversial — McDonald’s restaurant.

The building’s owner, Mid-West Group of Companies president and CEO Ken Achs, said at the time the site would be used as a parking lot until redevelopment plans were drawn up and approved.

Three years later, the site is still being used to park cars. Achs said while plans to build a single-tenant, four-storey office building are inching forward, collapsing natural resource prices have put the brakes on development across the city’s core.

“The market has dried up …. The vacant lots in downtown Saskatoon are, for the most part, waiting for the cycle to change, and by that meaning pre-leasing,” Achs said, echoing Mayer.

Until natural resource prices recover, spurring interest in the city’s core, converting land into parking stalls allows landowners to hold property, minimize their tax costs and possibly even make money, he said.

“It makes more sense to knock the building down and make it into a parking lot as opposed to taking a Class D tenant and eking some money out and hoping the market turns around and you can get a good tenant in your old … building.”

Weak economic conditions won’t eliminate all speculative construction, as demand for some types of spaces still exists, but it can “make a lot of sense” to build parking lots, says ICR Commercial Real Estate managing partner Barry Stuart.

While civic building incentives such as tax abatements have the potential to drive development, the prospect of a “five or six per cent return” on empty land over the short term is appealing, he said.

Stuart is not the only analyst who believes resurrected commodity prices will “absolutely” jump start development in Saskatoon’s core, leading to an undersupplied office market and rising demand for — and prices of — parking stalls.

Achs declined to name the tenant his firm is negotiating with but said “in an ideal world” he would like to start work on the site in the spring, as the commodities cycle claws its way up from the bottom.

Bakonyi said that while the investors he represents don’t have immediate plans to develop the empty lot where The Pat used to sit, they are optimistic about the future of the city and their project.

“We’re wanting to find the right opportunity, waiting for the right opportunity, and the right time.”