Established Businesses, Hotels and Farmland Hot Sellers in Saskatoon Commercial Real Estate Market

2024 Saskatoon Commercial Real Estate Trends

The Saskatoon commercial real estate market continued to experience strong demand for multiple asset classes in the first quarter of 2024, with transaction volume for existing businesses, hotels and farmland on the upswing as local and interprovincial investors enter the market, according to the RE/MAX 2024 Commercial Real Estate Report. More conventional multi-family, industrial and retail categories remain solid year over year, with some upward pressure on values.

Positive economic growth in key sectors of the provincial economy have set the stage for a vibrant commercial real estate market in 2024. The province is growing at rates not seen for more than a century, and the economy continues to accelerate with record private capital investment and GDP growth, according to a May 7th press release from the provincial government. The latest GDP numbers for Saskatchewan show GDP reached an all-time high of $77.9 billion in 2023, surpassing year-ago levels by 1.6 per cent–well above the national average of 1.2 per cent. Private capital investment is projected to reach $14.1 billion this year, an increase of 14.4 per cent over 2023.

Business sales and acquisitions for well-established retail franchises, convenience and grocery stores, restaurants and gas stations have soared this year, despite incredibly tight lending practices. Limited inventory levels have hampered sales to date, especially for gas stations, but buyers continue to wait patiently in the background.

Hotels are now a preferred access class with many investors. Four hotels changed hands so far this year in Saskatoon and the surrounding areas, with large investors from Ontario leading the charge. For example, a 40-room hotel with net net income of $260,000 per year generated six competitive offers, all coming from the same province. Supply is also limited in this segment of the market, due in part to many hotel owners who are holding off on sales until their books reflect a full year of post-pandemic reservation activity.

Demand remains solid for warehousing and distribution space in the industrial market, with lease rates climbing to $12 to $15 per sq. ft. Investors and owner-occupiers are seeking older industrial buildings within Saskatoon for demolition and rebuilding or repurposing. While there is pressure to build new developments on the outskirts of town where land costs are lower, the price of construction has dramatically increased in recent years, given labour shortages, the high costs of financing and servicing the land.

Developers are more likely to focus their attention on the multi-family segment in Saskatoon due to the current housing shortage, with most sitting on pre-purchased land at present in a build-to-hold pattern until they bring in partners. Real Estate Investment Trusts (REITs) and institutional investors are exceptionally active in this segment, given the two per cent vacancy rate (October 2024) and an average monthly rental rate for a two-bedroom apartment up by nine per cent, according to Canada Mortgage and Housing Corporation (CMHC). While condominium construction has also been affected by higher overall costs, the potential for higher monthly rental rates has investors lining up, particularly for townhomes and row housing.

Demand for retail has been consistent, given the current rate of residential construction throughout Saskatoon. Strip plazas and stand-alone buildings are most sought after by eager tenants, with lease rates ranging from $25 to $35 per sq. ft. plus common areas. However, investor interest in strip plazas has subsided somewhat in 2024, compared to levels reported in years past, with inventory climbing as a result. Malls are also under pressure, with three currently listed for sale.

Saskatoon’s downtown office market is struggling in large part due to the addition of several new office buildings, which created a vacuum in B and C-class buildings. There is some divestment occurring this year, with Dream Investment Fund recently listing a large portfolio of nine office buildings (three of which are in Saskatoon and six are located in Regina), representing more than half a million sq. ft. of office and retail space. Hybrid work schedules combined with post pandemic social issues are having an impact, resulting in a significant reduction of foot traffic in the core.

Farmland remains a coveted asset class in the province, with large corporate farms gobbling up acres of land this year. Saskatchewan led the country with the highest percentage increase recorded in cultivated farmland in 2023, according to the FCC Farmland Values Report released in March 2024. The price per acre rose 15.7 per cent last year, with the strongest uptick reported in the East Central region where values surpassed the overall average at 20.8 per cent. Values were highest for irrigated land in the West Central and South West regions, fetching an average of $6,500 per acre.

Supply of farmland remains exceptionally tight, with the lowest number of properties listed for sale in years. In fact, few farms make it to the Multiple Listing Service (MLS) because most are selling through word of mouth. Multiple offers are occurring with increasing frequency, especially on properties that are adjacent to existing farm operations. Record commodity prices in the past year have contributed to the expansion boom, with many farmers sitting on pent-up cash reserves. The vast majority of deals are cash purchases and not dependent on financing.