Saskatoon industrial sector defies pandemic

Spec industrial developers have nearly vanished, which is expected to drive the vacancy rate down to a decade-low this year

Western Investor
February 4, 2021

A build-to-suit Saskatoon industrial building in early 2020. | Varsteel Inc.
— A build-to-suit Saskatoon industrial building in early 2020. | Varsteel Inc.

In spite of the Royal Bank of Canada (RBC) recent estimate that Saskatchewan’s real GDP contracted by 4.7 per cent per cent in 2020, Saskatoon’s industrial vacancy rate declined by a miniscule 0.33 per cent to 5.32 per cent as of the fourth quarter (Q4) of 2020, according to Barry Stuart, managing partner of ICR Commercial Real Estate in Saskatchewan’s largest city.

The ICR’s Q4 2020 industrial report states, “Investor interest in the industrial market continued to be driven by relatively strong sectoral and property market fundamentals, both of which are expected to extend into the beginning of 2021.”

There is a lack of speculative building, however, as just two industrial building permits were issued in 2020 totalling 20,000 square feet, the report noted. The total industrial inventory in Saskatoon is 2.6 million square feet.

“This is only going to place greater pressure on the existing vacancy rate,” Stuart said.

“Regardless of whether we are discussing industrial, retail or office, I believe we are in a healthy commercial real estate market when vacancy rates are under 5 per cent,” he said.

“I believe the overall Saskatoon industrial vacancy rate will finally break below that 5 per cent barrier in 2021 which would be the first time since 2010,” Stuart said, though he conceded he made the same prediction for 2020, just weeks before the pandemic arrived.

“The one factor that could negatively impact that prediction is a significant increase in spec building this spring and slowing market demand to absorb that new inventory,” he said.

The latest RBC forecast for Saskatchewan’s economy suggests improvement over the next two years.

The RBC projects that provincial GDP will reach 4.7 per cent in 2021, up from minus 4.7 per cent in 2020, and reach 4.2 per cent in 2020. It further forecast that the unemployment rate in the province will drop from the current 7.8 per cent to 6.6 per cent this year and 5.9 per cent in 2022, which is close to pre-pandemic levels. Retail sales, which affect demand for industrial warehouse and distribution space, is forecast to increase 5.3 per cent this year and a further 3.3 per cent the following year.

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