Paulson: Commercial real estate market an indicator of Saskatoon’s strong economy

Something has started to shift here, and that is a very good thing.

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The thing about real estate is that it’s a very good indicator — although often a lagging one — of the state of the economy.

For example, property prices tend to lag market conditions, while interest rates lead them.

Housing statistics — which of course are the most relevant to the most people — are dramatic indicators of whether folk are thriving, and/or alternatively struggling to find roofs because of short supply (as we are now experiencing).

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But industrial and commercial real estate sales are also useful when gauging the present environment. Looking back at 2023 when we were beset by drought, inflation, high interest rates and global instability, it was actually a pretty good year in these parts, economically speaking.

It also turns out that 2024 is moving along quite nicely too.

As you may already have read in these pages, Saskatchewan posted record GDP of nearly $78 billion in 2023, up 1.6 per cent from 2022, and the second-best percentage showing among the provinces behind PEI.

Saskatoon, bless our collective heart, generated a record $24.9 billion in the first quarter of this year. That’s almost a third of last year’s provincial total, so when we consider the provincial stats, we can take a lot of credit for them.

What I found a bit surprising was that 13.6 per cent of that growth came in … construction. This is an industry that has been struggling for labour for some time. Neither have we seen new housing keep pace. Something has started to shift here, and that is a very good thing.

You can see this surge partly reflected in two recent reports covering the non-housing side of real estate.

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In its first quarter report, Colliers Saskatoon said “absorption” or lease uptake of industrial properties has gone up by 516,000 square feet of space over the last year, leaving a 1.5 per cent vacancy rate (down 50 basis points) as of Q1.

For context, Saskatoon has about 23.8 million square feet of industrial space, of which just 350,000 are vacant.

While the lease rate fell slightly to $12.12 per foot, asking sales prices jumped 21.7 per cent year-over-year, which could be described as “whopping.”

However, high interest rates have dampened the sales side of the market. Sales fell about 20 per cent from 2022, when rates began to rise. Even so, about 300,000 square feet of space is slated for construction this year, most of it in the north-end Marquis area.

Indeed, according to Statistics Canada, industrial building leapt 71.5 per cent in January over the same month of 2023. This clearly indicates confidence in our market, possibly with a splash of optimism over falling interest rates. One hopes this is not over-confidence.

What rather shocked me in a recent Re/Max Canada report was the recovery of interest in hotels. Hotels! What? You may recall the tragic state of hotel affairs back in the early COVID era. Those were brutal times, and some hotels barely scraped by . . . I’m not sure, to this day, on what.

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Yet meanwhile, arts and entertainment groups continue to suffer, and I wonder if business travel will ever entirely bounce back.

Despite these issues, the report called hotels “a preferred asset class” and said four hotels have changed hands so far this year in Saskatoon and area. One 40-room hotel generated six competitive offers.

Re/Max also said that demand remains “solid” for warehousing and distribution leasing.

Doing less well are malls — three are listed for sale — and downtown continues to post high vacancy rates for office space, although it’s better than it was a couple of years ago.

This is a continued hangover from the building of the Nutrien Tower at River Landing, which significantly expanded high-end space and emptied several other buildings downtown.

There’s also the COVID hangover. Business continues to struggle with balancing the new work-from-home phenomenon with getting people to show up at the office.

It’s not a straight-across-the-board yippee; some sectors are firing harder than others. But considering the recent headwinds, we are still standing upright, and then some.

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Joanne Paulson is a Saskatoon author and freelance journalist who has been covering real estate, off and on, for more than 25 years. Do you have a fascinating real estate story to share? Get in touch at [email protected].

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