Regina is ranked by the Conference Board of Canada as the fourth fastest-growing urban economy in Canada, and has the lowest office and residential vacancy rates in Canada, but the city's office developers and home builders are being given generous tax breaks to encourage speculative construction. The incentives include three-year property tax holidays for new office towers, which can amount to from $500,000 to $1 million per year, and cash incentives of up to $7,500 per new home for builders who deliver new housing in the downtown area and other selected neighbourhoods. There is also provincial and city programs that provide developer incentives to build affordable new homes, though Regina has the lowest average house prices east of the Maritimes. "It's a hangover from the NDP days," quipped one Regina realtor.

The Saskatchewan capital city did not see a single new office tower built in 20 years, despite all indicators signalling that a potash and oil boom was coming to the province. One new office building was complete last year, but the developer was given a tax holiday and the provincial government leased up nearly half the space, according to report in the upcoming February issue of Western Investor. The article "Gutless in Regina" questions why city developers do not engage in the type of speculative commercial and residential construction common in other Western Canadian cities. The report also queries why office and residential tenants are not provided with parallel discounts in taxpayer-assisted developments. 

Saskatchewan will lead the nation in economic growth in 2012, according to the Bank of Montreal (BMO). “Real GDP will likely expand 3 per cent this year, helped by a rebound in agriculture output, before cooling slightly to a league-leading 2.9 per cent pace in 2012,” said Robert Kavcic, an economist with BMO Capital Markets.

“Much better growing conditions during the summer helped the sector, and agriculture exports were up more than 16 per cent year-over-year through September,” Kavcic said in BMO’s latest provincial monitor. “Overall crop production should be up nearly 9 per cent in 2011, according to Statistics Canada estimates, with good-to-excellent quality reported.”

Resource-sector activity remains robust, said the report released Wednesday. “Potash production was up 25 per cent year-over-year through September, and the sector will continue to support growth in Saskatchewan,” Kavcic said.

BHP Billiton’s Jansen potash mine is on track to begin production in 2015, while K+S recently announced plans to develop its Legacy Project, near Bethune, which is also expected to begin producing in 2015.

Exploration activity in the oil and gas sector is also strong in the Bakken formation in southeastern Saskatchewan, and the province is expecting 4 per cent annualized growth in oil production through fiscal 2013-2014, the report said.

Commodity-sector investment is supporting the labour market and driving wage growth. “The province’s unemployment rate has averaged just 4.9 per cent, while average weekly earnings are up a firm 4.8 per cent year-over-year, even as the national average has cooled significantly,” said Kavcic.

“Solid job prospects and relatively low living costs should continue to drive population growth, and combined with a modestly lower tax burden, will support consumer spending and the housing market. Retail sales are up more than 7 per cent year-over-year, the fastest pace in the country.”

BMO said Saskatchewan will regain the economic growth title in 2012, ahead of Alberta at 2.8 per cent. Canada is expected to see 2 per cent GDP growth in 2012.

Call it the potash factor, or a boomerang effect of former Saskatchewan residents heading back home. Whatever the reason, a Vancouver-based consulting firm is telling the City of Saskatoon that it should be gearing up for a population spike.

MDX Development presented a 915-page outlook report to Saskatoon city council this week that sketched out a city that will have 325,000 residents within 16 years, up from around 260,000 today.

The city has the land but not the infrastructure to handle the increase, MDX suggests. The consultant estimates Saskatoon will need six more hotels, at least three million square feet more retail space and a building boom in the rest of the commercial sector to meet demand. Office space will increase by 40 per cent to 6.8 million square feet  and industrial space will need to expand to 22.3 million square feet from the 15 million square feet available today, the study said.

Saskatchewan's largest city is already facing growth pressures. The city has one of the lowest residential vacancy rates in Canada and its industrial vacancy rate has risen slightly to 3.4 per cent this year. So far this year, about 400,000 square feet of new industrial space was started, virtually all of it by speculators.

Saskatoon is riding a provincial economic wave. This week the Bank of Montreal forecast that Saskatchewan will have the highest GDP growth and the lowest unemployment of any province in 2012. Much of the boom is tied to the resource sector, with an increase in potash prices and mining and an sharp uptick in oil exploration and drilling.  

The city of Regina, which has the lowest office vacancy rate in Canada, is proposing generous tax breaks for office developers. The city recently awarded a five-year property tax exemption to the developer of a 20-storey downtown office tower, and is considering extending a similar offer to all comers. The new Mosaic tower will open next year and represent the first major new office space in Regina in more than a decade. 

The city is planning to provide a 20 per cent property tax discount for three years for developers of either Class A or Class B office space in the downtown area. The incentive would stay in place until the office vacancy rate reaches at least 5 per cent, according to city officials.

Currently, according to a study by commercial realtor Avison Young, Regina's Class A office vacancy rate is around 0.8 per cent, with its Class B office space even tighter. 

Saskatoon remains a bright spot in Western Canada's residential sector, with an 18 per cent increase in housing starts this year, along with an 11.6 per cent increase in housing sales, but in a forecast report next month, Western Investor says 2012 will remain strong, but not nearly as active as this year.

The 2012 forecast says home builders, facing stiff competition from the resale market, will break ground on 2,500 new homes, down about 11 per cent from 2011. The average price of a new detached house will advanced by 1.4 per cent to $388,000, mainly due to an easing of land prices.

Condominium builders are also expected to scale back construction as they focus on selling complete and unsold units, which currently number 1,600, a 66 per cent increase from a year earlier. As a result, total multi-family starts are forecast to be down 21 per cent in 2012 to 950 units.

A wild card is a new home incentive from the City of Saskatoon for first-time buyers. If the program has a strong takeup, it could boos demand for lower-priced new condominums and townhouses next year.

Meanwhile, Saskatoon's apartment rental vacancy rate is forecast to increase to 3.8 per cent in 2012, from 3.6 per cent this year, and average rents are forecast to rise 2 per cent next year.

See the complete Residential Outlook 2012 report on Western Canada in the December issue of Western Investor.