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Real Estate Hot Commodity
Low Vacancy Rate, Condo Conversions Fuelling Buying Spree
Marquis Tower on Fifth Avenue is among three highrises sold to Weidner Investment Services in Seattle
Photograph by : Richard Marjan, The StarPhoenix
Murray Lyons, The StarPhoenix
Published: Wednesday, February 14, 2007
Saskatchewan individuals and companies with a track record of investing in commercial real estate are finding outside investors have discovered the Saskatoon market and are now fuelling a healthy competition to buy up good commercial real estate here.
Tom McClocklin Jr., president of Colliers McClockin, was recently host to his company's annual breakfast for those interested in the commercial real estate investment scene and reported on a number of transactions from the past year, which show considerable interest in the market from investors such as Canadian real estate investment trusts and even U.S. investors.
A downtown highrise apartment was one of three residential rental blocks across the city purchased in the last few months by a Seattle-area company, which had previously confined its Canadian investments to the Calgary and Edmonton markets.
Weidner Investment Services Inc. spent $24.9 million on the three apartments, including $9.3 million on the 131-suite Marquis Towers apartment building on Fifth Avenue.
That November transaction followed up on an investment the Weidner company made the previous year, when it bought a recently constructed apartment block, the Windsor Wellington, on Nelson Road in University Heights.
In an interview on Tuesday, McClocklin said investors are buying up existing residential apartments for two reasons. One is the expectation that, with low vacancy rates, landlords will get steady rent increases in the market. The second reason is for condo conversions.
One reason money is flowing into Saskatoon is that soaring property values in Alberta and B.C. are lowering net returns there for investors. That leaves Saskatoon as the next hot market.
"It's very difficult to buy into Alberta or B.C.," McClocklin said. "The return rates are very low . . . and there is a lot of money there looking to be placed, and so they're looking here.
"Now that I think there's confidence in our economy -- the same reason people are moving back here -- they have that confidence, so they want to invest in this growing economy. They see us as just poised to take off."
A number of real estate investment trusts and holding companies have bought strip malls or even bigger commercial developments in the past year. For example, the River City Centre at Circle Drive and Millar Avenue, arguably the city's first big box centre, sold for $22-million in April of last year, to Sunstone Holdings of Regina.
Despite outside interest, there is still room for local developers. McClocklin notes it was a local company that bought city land in south Briarwood, where a neighbourhood strip mall will go up with expected tenants such as a Shoppers Drug Mart joining the existing Extra Foods in that development.
On the retail side, the Colliers annual Canadian real estate review and forecast, released this month, predicts 1.3 million square feet of new retail space could hit the Saskatoon market in two to three years, with 430,000 square feet in the new Stonegate power centre alone where a Wal-Mart opened last month.
However, for those worried about the effects of big box developments in the suburbs on the city's core, retail space on the two prime blocks of 21st Street downtown are now renting out at an average of $26 a square foot, higher by $6 than what downtown landlords are getting in Winnipeg.
Similar retail space in downtown Regina commands just $15 a square foot, the Colliers' report outlines. Its report shows just a 4.5 per cent vacancy rate downtown, while Broadway-area retail landlords have it even better, with just a 1.4 per cent vacancy rate.
Other signs of life in the Saskatoon commercial market can be found in the price per acre of serviced industrial land. In 2005, such land sold for $170,000 an acre. Prices rose by $55,000 per acre last year and are expected to rise again to $265,000 an acre this year, according to the Colliers report.
Colliers is predicting industrial land will sell in Calgary for $800,000 an acre this year versus Saskatoon's $265,000. This city's industrial land prices are now on par with Winnipeg and more than twice what companies are paying in Regina ($110,000 an acre).
Just like there is a shortage of residential building lots, McClocklin says there isn't much of an inventory right now in Saskatoon of industrial land, especially for heavy industrial purposes.
He says the city's investment last year of nearly $18 million to put deep sewer and water lines into industrial land north of 70th Street for what was supposed to be a Maple Leaf Foods processing plant will not sit idle long. McClocklin says there is currently a lack of heavy industrial land such as that typically found in Saskatoon's north end.
"By the end of this year, that servicing could be over to Millar Avenue, so we could see that come on," he said. "But if for some reason the city couldn't get that servicing done, that could impact us negatively.
"We need to bring on land at a reasonable cost, because we don't want those land prices to get so that businesses say, 'I may as go to Calgary because the price isn't that much different,' " McClocklin said. "The competitive advantage we have is lower land prices."
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