Regina, along with Saskatoon, has the lowest industrial vacancy rate in Canada at 1.24 per cent, according to Colliers International.
As a result, the city's commercial real estate has lost some of the "price advantage" it enjoyed in previous years, said Tom McClocklin, managing director of Colliers' Saskatchewan team, during the company's 2011 real estate forecast in February.
McClocklin said rates for industrial space remain manageable when compared with some other cities in Canada.
And similar to other real estate sectors in Regina, the city's industrial sector is slated for major changes, including rapid new development.
Transport hub
Driving change in the industrial market is the relocation of Canadian Pacific Railway's (CP) downtown railyards to an area five kilometres west of the city dubbed the Global Transportation Hub (GTH).
The first phase of CP's relocation will likely begin near the end of the year - opening up a new swath of land downtown for development.
In the meantime, other businesses are constructing or negotiating to construct facilities in the GTH, which is meant to be a nexus for rail, truck and air freight.
Its first tenant is Canadian Logistics Services, which opened the first phase of a 965,000-square-foot, $350 million distribution centre on a 160-acre patch of land in the GTH in February.
When it is fully operational later this year, the distribution centre, which handles food and other products for the Loblaw Companies, will employ approximately 800 people.
Industrial isn't the only sector in Regina facing growth constraints: the city has the lowest office vacancy rates among major Canadian markets, at 1.8 per cent, according to commercial real estate firm Avison Young.
With a near-zero vacancy rate, Class A space is nearly impossible to find in Regina.
NAI noted in its 2011 forecast that office rental rates continue to rise as the difference between new construction and the existing shrinking supply becomes more apparent.
"The demand is going to be there, it is whether or not we are going to have the commercial real estate available to take advantage of the demand," said Mehlsen.
NAI expects rates to stabilize in 2013, following the ribbon cutting for the 200,000 square-foot Hill Tower No. 3, which will be the first office tower built downtown in 20 years.
An 80,000-square-foot downtown office building, which is still in planning phase, and a few other smaller projects in other parts of the city are also, according to NAI, "testimony to the market's strength."
Mehlsen said that the current supply constraints may be hindering outside investors, such as Toronto's Whiterock REIT and Winnipeg's Artis REIT - two income trusts that have made major purchases in Regina in recent years - from making further investments in the city's commercial real estate.
"The challenge for us is finding good-quality investment product that they'd be inclined to buy," said Mehlsen.
According to NAI, capitalization rates below 8 per cent are not uncommon for quality properties that are well located and well tenanted in Regina.
Mining plays
As the more northern of Saskatchewan's two largest cities, Saskatoon has closer ties to resources players, including roughly half-a-dozen potash mines within an hour of it.
But Regina has not been left out of the resources boom.
Within a two-hour drive of the capital are nearly a dozen operating mines.
And the GTH will make Regina a major hub for many commodities destined for markets across Canada and worldwide.
Statistics Canada recently reported that Regina is the third-fastest-growing metropolitan area in Canada after Saskatoon and Vancouver.
Regina's population grew by 5,000 in a year to 215,000 people as of July 2010.
Many of the newcomers were young people arriving from other provinces, particularly Alberta (which was once a key destination for Saskatchewan folks that believed their future lay anywhere but in their home province).
However, accounting for most of the population growth in Regina were immigrants from countries like the Philippines, China, India and Ukraine.
And they had no problem finding work: the city's unemployment rate is the lowest among major Canadian cities at 4.5 per cent, according to StatsCan.
The city had the highest real GDP growth in Canada in 2010, at 6.3 per cent, and the Royal Bank of Canada predicts Regina's real GDP growth in 2011 will be around 4.8 per cent.
Avison Young expects 2011 building permits in Regina to set a record for the seventh-straight year.
Some of the big projects in Regina that are employing locals and newcomers alike include the $2 billion expansion of Saskatoon-based Federated Co-operatives Ltd.'s oil refinery in the city. It is boosting production capacity from 100,000 barrels of oil a day to 130,000 barrels a day.
"There will be up to 3,000 people working on that site in the construction phase - over and above the regular employees," said Larry Hiles, president and CEO of the Regina Regional Opportunities Commission (RROC), a government-funded economic development body for 69 municipalities and First Nations in the Regina region.
The Mosaic potash mine, located 50 kilometres to the west of Regina on the way to Moose Jaw, is undergoing a $1-billion expansion.
Hiles said that, collectively, mining operations in Saskatchewan are undergoing a $6 billion to $7 billion expansion.
"People typically didn't drive that far for a job in Saskatchewan, but as population and infrastructure have grown people are commuting longer distances," said Hiles. "Every one of those mines is probably drawing employees from up to an hour away in every direction."
Rental crunch
With the health of the economy and the influx of newcomers, Regina is finding it challenging to house its growing population.
New residential developments such as the massive 800-acre Harbour Landing in the southwest of Regina, and a new tower downtown are ensuring a balanced market for homes and condos for those who can afford to buy.
And Harbour Landing's 900,000 square feet of retail space is expected to ease any retail supply constraints, even if other types of commercial spaces will remain difficult to find in the near future.
The city, however, is struggling to maintain an adequate rental market for newcomers and transient workers who may not be ready or willing to purchase a new home.
Regina placed a moratorium on condo conversions in 2008, and is looking at ways to grow its rental market, which has the second-lowest vacancy rate among major Canadian cities at 0.8 per cent.
That vacancy rate helped drive rental rates up 9 per cent between April 2009 and April 2010, turning rents into a potential political issue in this November's civic elections.
from Western Investor, May 2011
