Industrial building may slow in 2014

By Scott Larson, The StarPhoenix December 7, 2013 - New construction in Saskatoon's industrial sector will likely slow in 2014, according to ICR's 2013 winter industrial survey.

"There will be a bunch of buildings that will finish construction in 2014, mainly in the Marquis sector (in the north end)," said ICR market research analyst Alvaro Campos. "But you are not going to see the same expansion that you saw in 2012 and at the beginning of 2013."

Despite a projected softening in new construction, more than 400,000 square feet of new inventory has been created so far this year. And there is about 270,000 square feet currently under construction. More than 500,000 square feet of industrial space was absorbed into the market.

"It shows there is strength in the industrial market," Campos said.

Campos said high vacancy in newly constructed industrial condominiums shows that sector has been slightly overbuilt.

About half the space has been leased or sold, which is up from about 24 per cent in the previous quarter.

He said that sector of the industrial market needs to take a breather to let the demand catch up to the inventory.

Two major factors will affect future construction - rising costs and property taxes.

The cost of construction has increased 27.7 per cent between 2008-12 and it is expected to rise at least five per cent in 2014.

That is the third-highest increase behind Regina and St. John's, Nfld. The average increase of construction costs in Western Canada over the same period has been 21.9 per cent. The Canadian average was 17.6 per cent.

"That is a big increase," Campos said. "And it could even be as high as eight to 10 per cent in just one year."

Campos said the reassessment of property taxes in 2013 has also hit the industrial market hard.

The city has moved from a tiered tax system to a constant mill rate of 16.97 per cent.

ICR conducted a random survey of 50 industrial properties on Millar Avenue and found the average property taxes increased by 38.42 per cent in 2013.

The report said Marquis Industrial will likely continue growing with a possibility of five more land tenders between 2014-16.

"After a six per cent increase in 2012, lease rates remained stable in 2013," the report said.

Lease rates for new developments range from $10 to $14 per square foot. Lease rates for existing developments range from $6.50 to $12 per square feet.

"Initial forecasts project that lease rates may remain stable for the early part of 2014," the report said.

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