Regina commercial real estate report

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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.

Report Archives

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

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*RE/MAX, LLC, 5075 S. Syracuse St., Denver CO, 80237; RE/MAX Western Canada and RE/MAX Ontario-Atlantic, 639 Queen Street West, Toronto, ON M5V 2B7, 905-542-2400