High commodity prices and ongoing geopolitical turmoil are giving Prairie real estate industrial and commercial real estate strength.
While workers elsewhere return to the office, the resource sector is making Saskatoon, Winnipeg and other centres linchpins for processing and manufacturing as well as distribution.
“Everything we’re seeing in the economy is stable to strong to very strong,” said Richard Jankowski, managing director for Colliers International in Saskatchewan. “The war in Ukraine has put further pressure on the resources that come out of Saskatchewan. And that’s good news for us.”
Similar to other major markets, developers can’t build space fast enough to meet demand. Vacancies are at historical lows of less than 1 per cent in both Saskatoon and Regina. Despite major projects on the go in both markets, most space is already fully spoken for as the economy booms .
“Some farmers are having their best years ever. Commodity prices are at all-time highs,” said Andrew Williams, CEO of North Prairie Developments Ltd. in Saskatoon, noting that potash and uranium companies are also holding their own in the stock market.
“We can’t build the stuff fast enough in our marketplace to keep up.”
On the northern fringe of Saskatoon, online farm supply company Farmers Business Network has signed a 15-year lease on a 198,000-square-foot fulfilment centre at 123 Prospect Rd. in Corman Park built by York Realty Inc.
Just west of Regina, the province-owned Global Transportation Hub has come to life with its first land sales since 2017. Cargill closed a $38 million deal for 247 acres in April for a new canola crushing plant, originally announced last year. Amazon subsequently paid $3.3 million for a 14-acre site for a new development, details of which have yet to be released.
The per-acre pricing of less than $250,000 an acre pales next to pricing in Saskatoon, where surging demand has sent land prices north of $500,000 an acre. Driven by commodity prices, farmland has experienced strong gains, too, with Farm Credit Canada reporting values up 14.9 per cent in the 12 months ended June.
But despite a good supply of serviced and relatively affordable industrial land in Regina, construction cost increases have held back new development.
“The cost increases and recent spike in interest rates has made it tough for people to pull the trigger on new investment product or development product or land development projects,” Jankowski said. “That has driven up pricing on investment sales.”
Rising prices have yet to make for a tighter market in Winnipeg, however, which lies at the crossroads the key east-west transportation routes in Canada. It’s also due north from the Emerson-Pembina border crossing, the busiest in Western Canada after Blaine. It’s centre-ice for many industrial players.
“The construction we have is not keeping up with demand. Not even close,” said Dan Chubey, managing director for Colliers in Winnipeg. “Every quarter and every year we think at some point it’s going to plateau.”
This year has seen 1.6 million square feet of absorption to date, leaving just 700,000 square feet available.
“That’s a challenge, and that’s why we’re seeing rental rates grow, because of the demand and because of the cost of construction,” he said.
Several large transactions have moved forward as tenants lay claim to a limited supply of space, despite rising construction costs.
“We’ve seen a record number of large transactions,” Chubey said, noting that deals above 50,000 square feet are usually rare. “I don’t see construction costs at this point slowing down the ability for developers to have spec builds leased up when they come to market.”
Just as notable, demand is coming from several sectors, pointing to a healthy diversification resilient tenant base in the event of a recession.
“It’s not just e-commerce and those other drivers that you hear about, but distribution, manufacturing,” Chubey said. “It’s difficult to foresee a scenario where a recession will drive demand down that considerably.”
The price differential from other markets is also working to the advantage of Prairie cities. Chubey says several companies are looking at the Winnipeg area because they’ve been caught out in their own backyards.
“The cost for industrial real estate in those markets now and the growth that they’ve seen, it just creates an even more attractive environment for companies to potentially look at growth plans in a market like Winnipeg,” he said.
The interest is also flowing over into Saskatchewan, where investors priced out of larger centres have been scouting opportunities – and municipalities have been responding.
Martensville, just north of Saskatoon, is developing a concept plan for a 500-acre industrial growth area that will provide a focus for outside interest. The concept plan should be ready by early 2023.
“I was seeing firms grow and firms come and locate in this area,” community economic development manager Dillon Shewchuk said. “The second we initiated this plan, people really paid attention to it and it is leading to some interest and activity.”
The major landholder in the area is North Prairie, which recently finished servicing 13 acres, which Shewchuk terms “a catalyst” for development. It provides the shovel-ready land that’s in need.
Through Canwest Commercial & Land Corp., Williams is also developing Trilogy Ranch, a residential community on 680 acres recently annexed to Martensville where the city plans to build a new arena and rec centre. With a 20-year build-out, it will provide much-needed housing for workers in and around Saskatoon.
North Prairie completed 186 units multi-family rental units in Saskatoon last year, and it all leased up quickly, pointing to the strength of demand.
“Today we run about 900 units and they’re all sitting at about 1 per cent vacancy,” Williams said, noting that all segments of the real estate market seem to be strong. “There’s a lot of pent-up demand. … All the stars are aligned for a very strong market.”
For the full profile report on the Prairies top trio of cities, see the November print issue of Western Investor, on stands now, or view the digital edition online.