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Highlights - 2007

It was found that on a city-wide basis, office vacancy has decreased from the 6.1% found at January 2007 to the current estimate of 5.6%. Vacancy in the downtown office market dropped by a full three percentage points, from 8.2% in January 2007 to 5.2% in January 2008. The suburban market on the other hand saw an increase in vacancy, which can be attributed mainly to the new construction at Innovation Place, which is not yet occupied. Removing this specific location from the survey results in a large decrease for the suburban areas as well.

With vacancies at a 10 year low, the conclusion for 2008 seems to be clear. Rental rates are sure to be on the rise, and there is increased speculation as to when and where a new downtown office tower will be constructed. Some 270,000 sq.ft. of inventory was added to the overall Saskatoon office market in 2007. More than 140,000 sq.ft. of this was added at Innovation Place alone, which now has almost 28% of the entire suburban office inventory.

Positive absorption occurred in the core, with most of this being in the rental market. In the suburban market, the negative absorption figure is due to the new construction at Innovation Place.

Net effective rental rates are increasing in the good quality central core rental buildings and in most of the suburban markets. With no significant space additions slated outside the owner-occupied segment, 2008 may see higher than normal rent increases if demand continues at the current rates.

Looking more closely at the downtown core, most of the space absorption took place in the rental segment, in all of the Class A, AB, B, and C categories. Nearly 65,000 sq.ft. was absorbed in 2007, with most of the activity occurring in the Class A and AB markets. This caused vacancy rates in both of those categories to decrease by more than half of the 2006 rates. Government occupied space was the next highest contributor to absorption, and with 12,168 sq.ft. more space taken by these users over the past year. Vacancy in the government category is now at 0%.

The suburban market has continued to appeal to certain users who require a slightly different product than the downtown core can provide. The most recent highlight of this segment would have to be the announcement by Cameco that they would be erecting a new three storey structure on 11th Street West to meet their growing needs for space. The new development at Millar and 48th Street emphasizes this point to a degree. Although specific tenancy has not been named for this project, it is apparent that office and destination retail space is the intent.

Forecast - 2008

The Saskatoon office market continues into uncharted territory. Vacancies are down, rental rates are increasing, and tenant inducement packages are offered in only limited circumstances.

Rental rates will rise in all categories, with little or no notable new projects ready for occupancy in 2008, other than owner-occupied projects and the available space at Innovation Place.

As the demand for office space increases, there should be an increased move to renovate and replace buildings that are functionally obsolete. This would include a number of buildings in the downtown core that, for years, have been neglected and left to operate in a less than ideal manner. Since the demand is clearly there, landlords willing to make the change could be rewarded.

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 20th, 2008 by Ron