The relief would likely be welcome. The typical rent for a two-bedroom apartment rose 3.3 per cent last year, to $935, and Canada Mortgage and Housing Corp. (CMHC) forecasts it will rise to $950 this year. There are no rent controls in Saskatoon.
It all sounds like a sweet setup for a rental investor, but veteran realtor Del Peters quickly kills that buzz.
"There are no apartment buildings in Saskatoon for sale," said Peters, who has been running ads asking any owners to call him if they want to sell.
Peters adds the market may have already outpaced the typical small investor.
"A crappy West Side building is $50,000 a door," he said. Expect to pay up to $80,000 to $90,000 per suite for concrete rentals in better areas. "These are record-high prices," Peters said.
Smaller investors will also have to compete against big players - such as Calgary-based Boardwalk REIT and others - who have local agents on speed dial and are willing and able to pounce quickly.
Peters doubts the city's rental help plan will make much difference. "Whenever government gets involved in the market it is usually a bad idea."
While tight, the Saskatoon rental market is actually better than at any time in the past five years after it hit an all-time low of 0.5 per cent in 2007.
The only new rental construction is in condo apartments, 14 per cent of which are now being rented, according to CMHC, but it is tough to make positive cash flow on condo rentals when the average condo price is north of $200,000. The City of Saskatoon has moved to restrict conversions of rentals to condos, though this trend had already been slowing.
Industrial
The City of Saskatoon is a major player in the industrial market as the major source of serviced land. And business has been good. Prices for city-owned industrial lots were selling for $295,000 to $335,000 per acre last January and they all sold out by May. A second phase of lots was released in July at from $385,000 to $480,000 per acre. The latest lots came to market last November. Less desirable than previous releases, they are being listed in the $350,000 range, according to Colliers McClocklin Real Estate Corp.
The industrial vacancy rate is at a historical low of 2.7 per cent, down from 3.7 per cent a year ago and the lowest rate in Canada, notes company principal Tom McClocklin, who expects demand to remain high in 2011. "Prices will climb to more than $400,000 per serviced acre for serviced, desirable land in favourable locations," he said.
So why the tight industrial market? It breaks down to size and scale. Saskatoon has only about 20 million square feet of industrial, similar to a Greater Vancouver suburb, and has only been adding about 500,000 square feet a year, a pace that likely won't change among the city's careful developers. "Less than half the new industrial is being built on spec," McClocklin said. Also, most of the new construction is relatively modest. Of 13 of the largest new industrial buildings completed last year, more than half were less than 30,000 square feet.
Investors thinking about industrial condos may find Saskatoon worth a visit. There is a small amount of condo space. The best properties sell for up to $212 per square foot but you can find small-footprint strata in the $150-to-$180-per-square-foot range. The only new condo industrial underway is an 18,000-square-foot property on Kochar Avenue. Since such space can lease for $11.50 to $13 per square foot, it may be a good buy-and-hold play. After all, prices for industrial land have nearly doubled in five years and the next decade looks good for Saskatoon.
"Saskatoon is the gateway to the north," McClocklin explained, noting that the city is a major staging and service area for mining companies, potash companies and suppliers to the Alberta oilpatch.
The power of potash is seen in Saskatoon's office market, where BHP Billiton - which lost out on a $40 billion hostile takeover of Potash Corp. last year - recently leased all 50,000 square feet in the only new Class A building in downtown Saskatoon. The Class A office market in is made up of just four buildings, and all are fully leased, McClocklin said.
Office sector
The overall office vacancy rate is 6.5 per cent downtown, but the lack of prime space has convinced some tenants and developers to head to the suburbs for the first time. The downtown market is seeing some refurbishing activity, however. An old theatre was recently converted to office space and a city building is being made over into 30,000 square feet of offices.
Future projects include a potential 70,000 -square-foot tower, and an estimated 100,000 square feet that is planned for the landmark River Landing mixed-use complex on the city's waterfront. But Class A lease rates would have to rise from the current $30 net per square foot - the lowest among Canada's major cities - to make new office construction viable, local realtors suggest.
Retail
Saskatoon continues to lead the country with retail sales growing more than 4 per cent per year, according to the Conference Board of Canada, which picks the city for near-nation-leading economic growth this year. The city also has Canada's lowest unemploymet rate.
Demand for retail space is strong, with a vacancy rate of 2.2 per cent. New retail construction includes 240,000 square feet at University Heights Square and 300,000 square feet at Blairmore, a big-box development that already houses Wal-Mart.
McClocklin notes that retail was the second most popular real estate investment in Saskatoon over the past year, just behind land and ahead of industrial.
from Western Investor, March 2011
