Shakers in provincial real estate scene meet for first-ever forum amidst a bright industry outlook

BY FRANK O'BRIEN

Neil Evans was delighted but not surprised with the stunning takeup of space at his company's University Heights Square, the largest retail development in Saskatoon.

In the past month, six new tenants have joined a dozen others at the square, which sits on a 23-acre site at the corner of Attridge Drive and McOrmond Drive on the city's northeast edge.

"We knew retail demand was strong in Saskatoon," said Evans, president and CEO of Pillar Properties Inc., who added he had no doubts University Heights would prove a hit.

"There is strong demand for retail services in University Heights with more than 30,000 people in the area and a projected population exceeding 45,000 - larger than the population of Prince Albert," noted Ken Suchan, vice-president, Colliers International, which handled the leasing.

The first phase of University Square, which started last April with 115,000 square feet of space, is now 80 per cent leased, he said. Phase II commenced in August 2010 with the construction of an office complex. The first tenancy in the two-storey office building is Investors Group, which is now open. Three additional buildings are planned for this phase.

"Saskatoon is an island," said Evans, whose company owns more than 600,000 square feet of the city's commercial real estate. "This city never really saw a slowdown."

It is a theme heard often right across Saskatchewan, which has set an envious pace for the real estate industry over the past two years. Saskatoon is pegged as the city with the fastest growing economy in Canada. Regina has the lowest office vacancy rate in the country and both Saskatoon and Regina have among Canada's lowest apartment vacancy rates. Saskatoon also has the country's tightest industrial market, an indicator of its role in the oil and potash industry.

Forum speakers

And now Saskatchewan is welcoming its first Real Estate Forum, held in the province's largest city on May 17.

A key speaker on the forum's opening day will be Mario Lefebvre, director, centre for municipal studies, for the Conference Board of Canada. The newest forecast by the Conference Board has Saskatchewan leading the country in economic growth in 2011 and 2012, posting 3.9 per cent real GDP.

Higher commodity prices, continued population growth, gains in the energy sector, a significant rebound in agriculture and increased activity in resource development are key factors cited in the board's report, providing the basis for even stronger growth (4.5 per cent in real GDP) anticipated in 2012. Non-residential investment spending is a major element as well, driven by billions of dollars in expansion projects currently underway in the potash industry.

Royal Bank of Canada is even more bullish, predicting the province will see real GDP growth of 5.3 per cent in 2011 after a national high of 6.3 per cent last year.

Evans, who will join a retail real estate panel at the conference, noted that the overall retail vacancy rate in Saskatoon is around 3.3 per cent. According to a report by ICR Commercial Real Estate, prime downtown rental rates are approximately $30 per square foot.

Saskatoon's vacancy rate is up from the near Canada-wide lows of 1.6 per cent two years, a reflection of the large amount of retail space completed since then.

In the northeast, for example, the big-box Preston Crossing joins University Heights in adding new retail. The 46-acre Preston site is anchored by Wal-Mart, Sobeys, Canadian Tire and Rona and has more than 500,000 square feet of leasable space.

Colliers notes that older retail locations, such as Riverdale and Caswell Hill may become more important, especially to smaller retailers.

It is not only retail that is seeing action in Saskatoon. Class A office space downtown - composed of just four buildings - is renting from $30 per square foot and there is very little space available. Citywide office vacancy rates are 6.6 per cent, but tighten sharply for prime sites. There is word in the city that two towers - of 70,000 square feet and 100,000 square feet - are being planned, but the forum may hear of other projects going ahead.

It is the industrial market in both Saskatoon and Regina that is attracting the most interest. The city is selling prime serviced industrial land for up to $400,000 per acre, a level that Tom McCocklin of Colliers McCocklin Real Estate Corp. believes will become the benchmark in the city, where the industrial vacancy rate has fallen to a record low of 2.7 per cent.

Saskatoon has a fairly small 20 million square feet of industrial and, so far, less than half the 500,000 square feet being added annually is being built on spec. However, with lease rates nudging $12 to $13 per square foot, that may change.

"Saskatoon is the gateway to the north," McClocklin told Western Investor prior to joining a panel at the forum, noting that the city is a major staging and service area for potash companies, mining exploration companies and suppliers to the Alberta oilpatch. The outlook, he said, "is very strong."

from Western Investor, May 2011