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Highlights

On a city-wide basis, office vacancy increased from 3.0% at January 2009 to the current estimate of 4.1% for January 1, 2010. Vacancy in the downtown core area increased from 3.8% in January 2009 to 5.2% in January 2010. The suburban market also saw an increase in vacancy, from 2.2% for January 2009, to 2.9% for January 2010. Vacancy changes were largely a result of the addition of new space, which outpaced absorption slightly for 2009, and represents a normal cycle in real estate development.

Approximately 199,000 square feet of inventory was added to the overall Saskatoon office market in 2009, with just over 80,000 square feet being added in the suburban category, and just under 120,000 added in the core. This represents an increase of two thirds over what was added to the overall office inventory for 2008.

There was negative absorption in both the downtown core and the suburban areas, as construction and space availability outpaced the immediate requirements by space users. This is seen as a normal fluctuation in the real estate market.

Planned construction in the downtown core appears to be minimal at the date of this writing, however, there are projects that are at the pre-leasing and/or conceptualization stages that may go ahead if demand is sufficient. At present, the one project that will be assured is the 29,000 square feet in the former Capital Theatre that is set to become available some time in mid-2010.

New construction that was announced for the suburban areas of Saskatoon includes 20,700 square feet in a new building at 3333-8th Street. This is a multi-storey building that is at the pre-leasing stage with construction nearing completion. Another multi-storey office will be constructed by D&S Homes, at 502 Cope Way in the Stonebridge area. This 21,000 square foot building comes after the developer's first successful venture in the area, located at 203 Stonebridge Boulevard.

Net effective rental rates in the downtown core remained relatively stable for 2009. There was some continued upward pressure on premium space, especially as Class A space in Saskatoon continues to be a relative bargain in Western Canada.

Operating costs are relatively stable, with marginal increase associated with normal inflationary pressures, but this is not expected to continue, as prices for utilities such as natural gas were depressed in 2009 and are forecasted to rebound significantly through 2010.

The most notable occurrence in the downtown core was the completion of the LEED certified Discovery Plaza and the leasing of a good portion of the overall space to BHP Billiton, a leading global natural resources company. The importance of this particular item of activity has many facets. Firstly, the completion of the building marks a successful venture into the downtown office market for North Prairie Developments Ltd., a Saskatoon based developer. Secondly, the leasing proves that there are tenants willing to pay the rental rates required on new construction, and third, the entering of BHP Billiton as a new player in the Saskatchewan mining industry can only be seen as a positive and welcome sign of the province's economic health.

Forecast

The current Saskatoon office market is seen as a stabilized situation, with rents no longer climbing beyond inflationary figures on a yearly basis, and vacancies reaching a more typical level. It is expected that 2010 will see a continuation of this stable situation.

Qualification
Readers of the study are welcome to use the information as deemed appropriate, providing we are quoted as the reference source. Brunsdon Junor Johnson Appraisals Ltd is a real estate appraisal firm providing a wide range of appraisal and consulting services, with the primary market being the north central portion of Saskatchewan.

Special recognition and thanks is paid to all the building owners, property managers, real estate agents and government agencies who assisted with information upon which this report is based. Without their support this study would not be possible.





Updated March 23rd, 2010 by Ron