SUPPLY EXCEEDS COMMERCIAL REAL ESTATE DEMAND.

Years of growth leads to correction

After a number of years of growth, the industrial commercial market is expected to cool off this year, according to a new survey by ICR Commercial Real Estate.

“We have had quite the run here for a number of years where demand exceeded supply,” said Ken Kreutzwieser, one of the partners at ICR. “Now, supply exceeds the demand and it is a correction in the market.

“Deals are still getting done, people are busy and there is still tenants expanding and coming to town. It’s just not the rapid rate that it was.”

Since 2012, Saskatoon’s industrial market has added an average of 320,000 square feet of new inventory per year, for a total of 1.2 million square feet (or eight per cent), the report stated.

The majority of supply is in the north end.

ICR’s report projects development activity will decelerate in 2015 with between 200,000 and 250,000 square feet of new supply introduced.

At the moment there is about 1.24 million square feet of space vacant, creating a 6.9 per cent vacancy rate.

The report said lease rates should remain stable with existing developments rates ranging from $6.50 per square feet to $14.75 per square feet and new development rates from $9 per square foot to $16 per square foot.

Despite an abundance of new supply, some niche markets are still tight, the report said.

“One example of an underserved niche within the market is that of bays smaller than 2,000 square feet,” said Kreutzwieser.

He said sectors such as the trades, subtrade and truckers are looking for those smaller bays.

“It is basically startups and smaller businesses that are running in that three- to five-employee range.”

Kreutzwieser said a healthy, balanced market is around the five per cent vacancy rate and he’s confident the rate will come back to that range.

“A couple of things have to happen — a slowdown in construction so there is less product coming to the market, and just time to allow it to absorb.”

Regina’s industrial market had a vacancy of 2.6 per cent after the first quarter of 2015.

The report said government tenants have driven the growth of the market in the past 12 months. Projects include a 145,000 square foot warehouse in the Global Transportation Hub for the Saskatchewan Liquor and Gaming Authority, and a 50,000 square foot lease in the Ross Industrial sub-sector for the new provincial hospital laundry

“Demand for new inventory and land within Regina’s industrial market continues to be strong,” said Alvaro Campos, ICR’s market analyst. “With construction costs expected to decrease in the coming months, it is likely that the appetite for future development will accelerate.”