Building boom defies vacancy rates

Spike in permits may be effort to start projects before tax changes

Residential, commercial and industrial vacancy rates in the Saskatoon region are at or near record highs, but that didn’t stop developers and construction firms from ramping up their building plans in the first three months of 2017.

It remains unclear, however, what caused the value of building permits to jump 26 per cent, to $219.8 million from the $175 million recorded in the first quarter of 2016, according to the president of the Saskatchewan Construction Association (SCA).

“It’s never bad to see building permits go up,” Mark Cooper said.

“But the question is: Will we, in the next three to four months — that will be the key time frame — see a pickup in occupancy … and will we see continued growth in building permits?”

According to Statistics Canada, the spike in building permit values is due to growth in both the residential and commercial construction sectors, which climbed 28 per cent and 22 per cent respectively from the same period last year.

Construction plans in the region appear to be centralized in the City of Saskatoon, which on Tuesday reported a 54.8 per cent increase — to $140.6 million from $90.9 million — in the value of building permits issued in the first quarter.

Cooper said one explanation could be developers racing to get

their projects started on paper ahead of a major change to the provincial sales tax that the SCA and other organizations have estimated will add three to four per cent to project costs.

Another factor could be the effect of a few large projects on the region’s comparatively small economy, which can skew building permit figures over the short term, according to ICR Commercial Real Estate managing partner Barry Stuart. “Office and industrial is an example — last year there was nothing going on, hardly,” he said. “And it doesn’t take a lot of increase in activity to affect those numbers significantly.”

The region’s climate could also explain the sharp increase in building permit values, Stuart said. “Typically people are not putting in foundations in January, February March; they go for permits to start construction in the spring.”

The first-quarter reports from StatsCan and the municipal government come as the region grapples with sky-high vacancy rates and softening rental rates — one example of how crumbling commodity prices ripple through the region’s economy.

It may take a few months before the big picture becomes clear, but Cooper said a modest increase in building permit values suggests economic optimism after more than a year of tough conditions.