Strong economic growth has placed serious pressure on almost all types of commercial real estate in Regina, with demand for product reaching levels not seen in years, according to the new 2022 Commercial Real Estate Report from RE/MAX Canada. Saskatchewan’s resource-based economy* is clearly on the rebound, with the price of Western Canada Select (WCS) hovering at $100 per barrel; grain values up by 50 per cent so far this year and climbing; potash production ramping up, increasing by a million tons in light of recent world events; and major capital investment announced in the province’s forestry sector. Support for these industries, however, has faltered, with little commercial construction occurring over the past five to seven years. Supply, as a result, has fallen to critical levels in many segments of the commercial market, and values are edging upward.
Industrial commercial real estate in Regina represents the strongest asset class, yet shortages exist across the board. Vacancy rates have dropped below three per cent in Regina this year. Warehousing and development land are also in short supply. Values in the city’s west side reflect tight market conditions, climbing to $750,000 to $850,000 for an industrial acre. Properties throughout the city are being amalgamated and rezoned to meet the needs of certain industrial operations. End users are behind the push for product, with most seeking to expand operations to support local industry. Industrial property in bedroom communities such as White City, Emerald Park, Carson Park, and Lumsden continue to present opportunities, although rising construction costs, off-site levy fees, labour shortages and delays are additional challenges developers currently face.
Farmland values continue to escalate at a rapid pace, despite high taxation in the province. Domestic buyers from British Columbia, Alberta, and Ontario are once again the primary drivers in this segment of the market. According to the most recent Farmland Values Report issued by Farm Credit Canada (FCC), South Eastern Saskatchewan experienced the greatest increase in the average price per acre in 2021, rising 14.7 per cent over 2020 levels to reach $2,200, followed by an 11.3-per-cent increase in East Central Saskatchewan, bringing the price per acre to $1,900. A continuation of tight inventory levels will place further pressure on values in the year ahead.
While recovery is underway in the retail sector as pandemic restrictions ease, the market is somewhat spotty. Absorption rates have climbed for restaurant retail, with fully functioning restaurants moving quickly. Inventory of smaller spaces—between 1,000 and 1,200 square feet—is particularly tight, with demand outpacing supply. Regina’s east side, Harbour Landing, and Grassland Park remain the most popular destinations with those seeking retail locations, while demand for space within the downtown core remains lacklustre.
Office space continues to struggle under the weight of the pandemic. Lease rates, particularly in older buildings in the downtown core, have declined. Inducements continue to be offered, with landlords more than willing to negotiate on product. Employees have yet to return to the office full-time, with most favouring a hybrid model at present. Once the pandemic is in the rear-view mirror, businesses will be better able to access future needs in terms of leased space—which could have an impact on the overall office market moving forward.
Multi-unit residential continues to attract out-of-province investors to commercial real estate in Regina, although the cost of construction remains expensive at current rental rates. Small strip malls present ideal opportunities for mixed-use, high-density developments, with retail/commercial on ground level and residential rental apartments above. CMHC’s Rental Construction Financing Initiative (RCFI) has played a role in increased investor interest, with offers of low-cost financing to eligible borrowers. Benefits include 10-year terms at fixed interest rates, 50-year amortization periods, and up to 100 per cent loan to cost for residential space, and up to 75 per cent loan to cost for non-residential space, based on the strength of the borrower’s application.
As Regina’s economy gains momentum, population increases should follow suit. According to RBC’s Provincial Outlook from March 2022, Saskatchewan is expected to experience substantial GDP growth in the year ahead, rising an estimated 5.7 per cent by year-end 2022, second only to Alberta at 5.8 per cent. The commodity market is set to soar, with one analyst at Chase-Manhattan predicting a commodities “supercycle” in “Saskaboom” over the next seven years. Renewed emphasis on agriculture, energy, potash and nitrogen and forestry, including a $1-billion capital expenditure in the forestry sector, should have a sizeable impact on residential and commercial real estate in Regina and across the province. Significant opportunities for investors exist, both large and small, given Regina’s affordable price point when compared to other major centres.
*Saskaboom 2.0 with Paul Martin
National Commercial Real Estate Highlights
With North American stock markets dangerously close to correction, bricks-and-mortar commercial real estate continues to resonate with institutional and private investors, particularly those who are personally vested, across almost every commercial asset class in major Canadian centres, say RE/MAX brokers.
The RE/MAX Canada 2022 Commercial Real Estate Report found demand for industrial, multi-unit residential—particularly purpose-built rentals—and farmland was unprecedented in the first quarter of 2022, with values hitting record levels, while retail and office are starting to show signs of growth in multiple markets.
The report examined 12 major Canadian centres from Metro Vancouver to St. John’s. Regional highlights include the following:
- 92 per cent of markets surveyed (11/12) reported extremely tight market conditions for industrial product in the first quarter of 2022. Newfoundland-Labrador was the only outlier.
- 67 per cent of markets surveyed (8/12) found challenges leasing industrial space. Included in the mix were Vancouver, Edmonton, Calgary, Winnipeg, Ottawa, the Greater Toronto Area, Hamilton-Burlington-Niagara and London. Some realtors are recommending tenants start their search for new premises at least 18 months before their current leases come up for renegotiation.
- While demand for overall office space in the core remains relatively soft in 92 per cent of markets (11/12) across the country, Metro Vancouver continues to buck the trend.
- Suburban office space continues to prove exceptionally resilient in 67 per cent of markets surveyed (8/12). Those markets include Vancouver, Calgary, Saskatoon, Winnipeg, Hamilton-Burlington-Niagara, Ottawa, Halifax-Dartmouth and Newfoundland-Labrador.
- Development land remained sought after (industrial/residential) in 67 per cent of markets surveyed (8/12) including Vancouver, Calgary, Regina, Saskatoon, Winnipeg, Ottawa, the Greater Toronto Area and Halifax-Dartmouth.
- End users are encountering challenges in terms of expanding their businesses due to land constraints/shortages, with specific mentions of this noted in Vancouver, the Greater Toronto Area and Regina.
- Retail is on the rebound in 75 per cent of major Canadian markets (9/12), with strong emphasis on prime locations in neighbourhood microcosms. The trend has been identified in Vancouver, Edmonton, Calgary, Saskatoon, Regina, Winnipeg, Hamilton-Burlington-Niagara, Toronto and Ottawa.