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Commercial real estate in Regina is turning the corner, with both out-of-provinces and international inquiries regarding existing opportunities growing in almost every asset class.
Industrial sales and leasing are at the forefront for most, with vacancy rates at less than one per cent. Developers are scrambling to meet demand but with little or no serviced land left in the city, industrial continues to be pushed to Regina’s peripheral areas where the cost per acre of serviced industrial land has now risen to between $450,000 and $550,000 an acre. There is some redevelopment land in westside adjacent, but offsite levies and service fees would bring the cost to $750,000 an acre, leaving little return on investment in today’s high interest rate environment.
Developments east of Regina, including Emerald Park, White City, and Pilot Butte, and the city’s north end (Parker Industrial) are thriving, with tenants now vying for space. The global transportation hub west of the city has seen an uptick in activity over the last year or so, with particular emphasis on warehousing and distribution space with some manufacturing mixed in. Supply issues have prompted some in the city to manufacture small goods locally, which has also contributed to the upswing in demand for manufacturing facilities. As availability rates decline, lease rates have firmed up across the board, running between $12 and $13 per square foot net, with newer buildings leasing at closer to $13 to $14 per square foot.
Regina’s housing shortage, coupled with strong population growth, has accelerated the development of purpose-built rentals in Regina, with some spillover into neighbouring Weyburn and Estevan. Small to mid-size REITs are the main drivers in this market, while smaller developers from Manitoba and Ontario are investing in repairable multi-family buildings in good locations, cashing in on rising rental rates.
The retail market has been relatively steady over the past year, with demand greatest for leased space in sought-after locations. South Albert Street continues to be Regina’s premier shopping destination with demand outpacing supply. Although enclosed malls have fallen out of favour with consumers, several REITs have revitalized some locations by adding superstores and increasing foot traffic.
Office space in the core continues to drag on the Regina commercial market, with the pandemic only serving to further exacerbate existing issues. Smaller offices in the suburbs have fared slightly better, but the overall market is still underperforming. Availability is high, particularly in downtown Regina, where many corporate offices are reconfiguring space requirements to accommodate hybrid work models. Sublet space is a growing factor in overall availability as a result.
Farmland remains buoyant, with record sales occurring as large farm operations continue to expand into adjacent properties. Price increases have followed in lock step, with percentage gains in North Eastern and West Central Saskatchewan experiencing the greatest upswing in 2022, climbing 24.2 per cent and 17.2 per cent respectively, according to the 2022 FCC Farmland Values Report. Irrigated farmland in the province’s West Central and South Western areas have jumped 26 per cent, rising from $5,700 to $8,000 per acre. Interest in the market has grown exponentially, with both out-of-province and foreign investors looking to participate in the upward momentum.
Financing, however, is becoming increasingly challenging in today’s high interest environment, particularly with the big six chartered banks who are tightening lending criteria. Arranging financing on farmland or the sale of businesses remains most frustrating for investors, with lenders now demanding down payments upwards of 45 per cent. While there are alternative lenders available to farmland investors, those selling businesses in Regina continue to see deals fall apart.
With Saskatchewan once again poised for solid economic growth in 2023, investment in Regina is likely to continue. Economic fundamentals remain strong, buoyed by population growth in Regina which climbed a further 1.7 per cent between 2021 and 2022 cent to almost 270,000 residents, according to Statistics Canada, building on a 5.3 per cent increase between 2016 and 2021. Net migration to the city topped 6,000. Prospects for newcomers to Regina remain positive, as unemployment has fallen to 4.6 per cent. Net migration to the city topped 6,000. Commodity prices for wheat and canola are climbing, with demand for potash on the upswing. The price for Western Canadian Select (WCS) oil currently hovers at $53 USD per barrel at present but is expected to climb. Investment in the city continues unabated, including Cargill’s $350 million canola crushing plant currently under construction and scheduled to open in 2024. The economic outlook for Saskatchewan overall remains robust, as forecasts suggest the province will lead the country yet again in GDP growth. With solid fundamentals on tap, a significant positive net impact is expected for commercial real estate in Regina in the year ahead.