Paulson: Saskatoon industrial real estate in hot demand, short supply

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For the news consumer, industrial real estate may not be the sexiest topic.

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Most of us think about where we’re going to live, shop and eat out, not what a company is manufacturing across town. But industrial space, and how it’s faring, is incredibly important. As Brent Haas put it simply and bluntly, “Industrial drives the city, the community.”

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Manufacturing drives economies and jobs — so yes, it’s important.

I called Haas, a broker with RE/MAX Bridge City, for some perspective on local industrial real estate after RE/MAX Canada put out its quarterly report recently.

I was aware that it was tough to purchase industrial buildings in Saskatoon, but the report surprised me a little just the same.

“Industrial is extremely tight, with any space coming to market immediately scooped up,” the report said.

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Apparently, REITS (real estate investment trusts) and institutional investors are vying against companies (“end users”) who want to own rather than lease.

But the lack of supply is strangling activity and forcing companies to buy old buildings, which they either rehabilitate or tear down preparatory to rebuilding.

(In a brief digression related to the above, I liked this line in the report: “While Toronto is well-known for its crane count, Saskatoon is now home to the backhoe.” Ha.)

How tight is this market?

“There’s a lineup of buyers,” Haas said. “If I had 10 industrial buildings right now, tenants in place, I could sell 10.

“You list it and you will sell it instantly, if it’s priced well.”

Yikes. How did we get here?

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Haas says the situation dates to 2016-17, when a lot of industrial land was developed in the far north end: think 71st Street and beyond.

Going into 2019, there was “a lot of opportunity to get into a (leased) space from $7 to $9 a square foot, into brand new space with tenant incentives,” he said.

Then came the pandemic.

“After COVID, we were going into this boom all of a sudden and now we’ve seen rates jump up … to $12, $15, $16, $18 per square foot for that kind of building.” In other words, doubling, in many cases.

Those rates don’t apply to some of the space in older industrial areas of the city, he noted. Getting into a new building is easier because improvement costs are high, which has resulted in the 71st Street area filling up quickly.

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Not helping is that in at least one case, an industrial property was torn down and replaced by new office space, which is in considerably less demand. That seems odd to me, but there it is.

However, the situation is tight enough that things may start to shift on the infill side. For example, Haas points to the old Imperial 400 motel site on Idylwyld Drive, in his opinion the most valuable land on that strip. It hasn’t sold in the past, simply because of the old building sitting on the property.

Now, it won’t take long for it to sell, “even with the motel having to be removed,” he said. “New land is far more expensive than it is to demise that structure.”

Despite all this demand, though, little industrial space is being built. So, I wondered, if matters are this dire, why are we not seeing builders scrambling to meet demand?

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“They will say it’s too volatile,” Haas said. “Does Saskatchewan have the ability to draw the industrial people in to fill up these spaces? Developers look at this as a return concern. The builder looking at this is saying, ‘If we don’t have the user for this space, we’re not going to build it because we’re not going to build on spec.’ ”

And that is partly based on bad memories, he said.

“They were stuck holding hundreds of thousands of square feet in 2016.”

Saskatoon is also competing with Regina, which has far better infrastructure, including roads, for the industrial sector. Also, the mentality here is less aggressive than, for example, in Alberta, in Haas’s view.

Yet despite these issues, he thinks the industrial market will continue to be fairly hot for some time.

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“Industrial is a very slow-moving vehicle,” he said; the market takes quite a while to adjust.

“But the smaller industrial warehouses for your electrician or plumber will always be in demand. These industrial complexes for your countertop people and supporters of residential building, that’s always there. That grows, that shifts.

“So I think industrial is going to continue to grow. It’s just going to grow (on) a slower scale.”

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 jcpwriter@sasktel.net.

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