Regina housing market "problematic" amidst building permit boom

Investors bullish but fear tenant failure: the city is fearing overbuilding, yet construction is rising

By
Western Investor
June 28, 2017





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Regina’s economy offers stability – as usual – with steady but non-spectacular growth expected in most commercial real estate sectors. | City of Regina

 

Canada Mortgage and Housing Corp. (CMHC) claims Regina has a “problematic” housing market and that overbuilding is a key issue.

But Regina building permits reached $147 million in the first four months of this year, up $1 million from the same period in 2016, and housing starts, at 387 homes in the first quarter, are running 60 per cent ahead of 2016.

Collliers International released a Saskatchewan survey that found that nearly 70 per cent of real estate investors were either optimistic or “confident” on short-term prospects.

But the spring survey also revealed that 65 per cent of commercial landlords expect to see tenant defaults in 2017.

ICR Commercial Real Estate claims Regina has one of the most stable industrial real estate sectors in the country, with a 3.2 per cent vacancy rate and steady demand. But other analysts say the vacancy rate could double within a year and that the high lease rates being charged in Regina are a barrier to industrial tenants that must be addressed. Regina’s industrial sector average lease rates are $11.45 per square foot, which is significantly higher than in Winnipeg ($7.34) and Calgary ($8.) or even Vancouver ($9.80).

“We’re at the top end of the Canadian market. It makes it tough to attract folks when they’re calling from Toronto where lease rates are five dollars lower than Regina [at $6.53 per square foot],” said Richard Jankowski, Regina-based managing director of Avison Young.

“The worst is over” for the Regina economy, according to the Conference Board of Canada, but Regina’s office vacancy rate is north of 12 per cent, lease rates have fallen and new projects have been shelved.

In the retail sector, Regina’s shopping centres are forecast to post a meagre 0.8 per cent growth in sales per square foot this year, the lowest in Canada, but Colliers’ survey found that 67 per cent of investors saw retail as Regina’s best opportunity in 2017.

In fact Regina is seeing a retail boom, even as the retail vacancy rate rises to 4.7 per cent, up from 3.8 per cent a year ago. 

The 250,000-square-foot Grassland Urban Village will open this fall, and the 200,000-square-foot Acre21 also opens and introduces Save-On-Foods to the city. A further 100,000 square feet of new retail is under development at Dream Centre’s Harbour Landing shopping district.

In the multi-family rental sector, the message is a little clearer, if not totally cheerful. 

Regina’s rental vacancy rate has risen to 5.5 per cent, up fractionally from a year ago, but this is still the lowest vacancy rate among larger Prairie cities. The average rent has also remained stable, at an average of $1,025 per month, for the past year. But with an increase in purpose-built rental units, the vacancy rate could increase and rents in older stock could decline, according to a CMHC forecast.

More people 

So what is really happening in Regina? 

As always, it appears Saskatchewan’s capital will reflect the vagaries of the provincial economy, which has a weaker resource industry but a stronger agriculture component.

 With a relatively small commercial real estate sector, it is difficult for the big analyst houses to get a clear bead on the direction of Regina’s market. A single large apartment building can skew the housing starts and building permit numbers; a mid-size new shopping mall, office building or warehouse project can change retail, office or industrial vacancy rates. 

So we have to look at the big picture. And it looks pretty good, according to Economic Development Regina (ECR), which recently studied job and population growth in the city.

The ECR reports that Regina’s economy continues to expand with nearly all indicators posting advances over the previous year.

Total employment in the Greater Regina Area was up 2.1 per cent in January to April 2017 over the same period in 2016.

The city’s year-to-date unemployment rate remains relatively low at 5.3 per cent. 

The ECR also found that Regina’s population is increasing on the strength of international and intraprovincial migration, always a good sign, and is forecasting 2.6 per cent population growth this year. 

The ECR, in step with the Conference Board of Canada, is also forecasting Regina’s economy to post 1.8 per cent real GDP gains in 2017, up from 1.3 per cent in 2016.

Stability. Security. Growth. For today’s commercial real estate investors, that could prove a winning combination in a volatile year.


Frank O'Brien is the editor of Western Canada's biggest commercial real estate newspaper, Western Investor, as well as a contributing editor at West Coast Condominium, real estate contributor to Business in Vancouver and a regular media commentator on real estate investment.
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