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Saskatchewan offers an edge for triple-net investors

Single-tenant, triple-net commercial properties provide higher returns and lower cost than in British Columbia or Alberta, agents say
NNN deal comparison: The Wendy’s restaurant in Abbotsford, B.C., sold for $1,775 per square foot and produced a capitalization rate of 3.4 per cent. The Macdonald’s restaurant in Saskatoon, Saskatchewan, sold for $779 per square foot and produced a capitalization rate of 5 per cent. | Marcus and Millichap.

While most income-producing properties in British Columbia have outperformed their counterparts in the rest of the western provinces over the past two years, especially in speculative land prices, Saskatchewan holds an edge in a unique sector of the market, according to agents with Marcus & Millichap, Vancouver.

The agency found that, for single-tenant, triple-net commercial real estate, Saskatchewan offers investors higher returns at lower purchase prices, relative to both B.C .and Alberta. Triple-net refers to often corporate leases where a single tenant pays the full expenses of the property. This includes real estate taxes, building insurance, and maintenance, in addition to the cost of rent and utilities.

“While the trade-off in Saskatchewan versus B.C. and to some degree Alberta, is often speculative land appreciation, for income investors the Saskatchewan market offers notably higher returns. A lower nominal price range in Saskatchewan offers investors the ability to enter the real estate market and diversify their portfolios,” Curtis Leonhardt, an agent with Marcus & Millichap explained. The agency outlined the details of two comparable transactions that were completed in 2021, one in Abbotsford, B.C., and the other in Saskatoon, Saskatchewan as an example.

Both opportunities consisted of single-tenant quick-service restaurants with drive-thru facilities, secured with corporate covenants, and located within suburban-style communities in cities of comparable size. The opportunity in Abbotsford yielded a return of 3.4 per cent, whereas the Saskatoon investment yielded a return of 5 per cent, or more than 150 basis points higher. The differential in returns have been demonstrated across Saskatchewan and have spurred increased interest from B.C.-based investors, Leonhardt said.

Below are a few statistics that highlight some of the positive economic trends and drivers in Saskatchewan, according to Marcus & Millichap.

• Saskatchewan’s population continues to grow, and as of April 1, 2021, there were 1,180,000 people living in the province.

• The province is a hub for manufacturing and distribution due to its well-established road, rail, and air infrastructure.

• Saskatchewan has more than 2,400 trucking companies, two international airports, and two major rail lines.

• Companies that have recently invested or begun operating in Saskatchewan include Nutrien Ltd., BMP Billiton, Orano, Glencore, Yara International, and K&S Potash

“We continue to see strong demand for well-located, income-producing properties, especially single-tenant NNN leased assets, in Saskatchewan,” Leonhardt added.