Saskatoon downtown office vacancy rate will increase as River Landing progresses: analyst
Vacancy rate will grow to more than 20 per cent, observers say
As a major new riverside tower enters its final phase of construction in Saskatoon, the city's downtown office vacancy rate could further increase in the years to come, according to a group following such trends.
The current vacancy rate for "competitive" downtown office space stands at 16.7 per cent, amounting to over 400,000 square feet of unfilled office space, according to the latest survey from ICR Commercial, a Saskatoon-based real estate company.
That's up from almost two years ago, when the same survey showed a 15.6 per cent vacancy rate.
According to Barry Stuart, a managing partner at ICR who writes for an independent blog called Saskatoon Edge, the current 16.7 per cent vacancy rate takes into account yet-to-be-claimed space in the East Tower that's nearing completion at the corner of Third Avenue and 19th Street, part of the larger River Landing development.
Businesses are expected to take residence in that tower beginning this fall. Among those tenants already confirmed are law firm MLT Aitkins, tax firm Ernst and Young, Royal Bank of Canada, Over Easy Breakfast and two of the companies involved in River Landing development: Victory Majors and Triovest.
A sister tower at the corner of 19th Street and Second Avenue — the future home of Nutrien, now located in the Scotia Centre tower — is at the early stage of construction.
The current 16.7 per cent vacancy rate does not account for 120,000 square feet of yet-to-be-leased, non-Nutrien space in what's being dubbed North Tower.
"It's a little higher than I guess we'd like to see," Brent Penner, the executive director of DTN YXE, the downtown business improvement district, said of the current vacancy rate "There are reports out there that I've seen nationally talk about a national office vacancy rate of around 12 per cent."
It may get worse in Saskatoon, according to Stuart.
"Once that additional vacancy [at North Tower] is accounted for, we will be reporting core area vacancy in excess of 20 per cent," Stuart wrote.
There aren't enough new tenants on the scene, according to Stuart.
"The demand for new Class A inventory is coming from users already present," Stuart wrote.
Ernst and Young, for example, will move from its current home in Saskatoon Square on 22nd Street East to new digs in East Tower.
"There are not enough new tenants entering the market and the flight to quality is projected to continue," Stuart wrote.
Good for renters?
The move to new buildings may put pressure on owners of older buildings to alter their lease rates, renovate their spaces or redevelop their properties, said Penner.
The situation will also benefit tenants, he added.
"Being a glass half full kind of guy, it's going to present opportunities for new businesses to find a home or [for existing businesses] to maybe look to expand downtown. Perhaps before they didn't have that opportunity."
Stuart is advocating for an alternate solution to lowering rates: redeveloping old spaces into hotels, rentals or condos.
"They typically have the lowest cost base, possess the most inherent functional obsolescence, and will therefore be affected the most by this transition," Stuart wrote of older spaces.