Regina Commercial Real Estate Sees Strong Start to 2024

2024 Regina Commercial Real Estate Trends

An optimistic local and provincial outlook has underpinned strong activity in the Regina commercial real estate market in the first four months of 2024, with a 50-per-cent uptick in sales over year-ago levels for the same period, according to the RE/MAX 2024 Commercial Real Estate Report. Twenty-four commercial properties have been sold year to date on the city’s Multiple Listing Service (MLS), with larger sales contributing to a 68 per cent increase in average price year over year.

Economic expansion is underway in the Queen’s City, with its labour market “firing on all cylinders.” Approximately 10,000 more people are working in the region yet demand for skilled workers is ever growing. International and interprovincial migrants continue to accelerate population growth and drive demand for housing. According to Regina’s recent economic report card, the unemployment rate hovered at 3.4 per cent in March of this year, while non-residential building permits soared 18 per cent as of February year to date, compared to year-ago levels.

Recent investment in the city includes the first phase of SaskPower’s new logistics warehouse, which was completed earlier this year, with the second phase expected to open by 2026. The company has also wrapped up its head office refurbishment and the purchase and renovation of a nearby building, which would bring its overall investment in Regina to more than $400 million. The case is also building for a biomass cluster in the Greater Regina Area (GRA), with Economic Development Regina (EDR) joining public and private sector leaders in support of the project, which could generate as much as $1.8 billion in economic activity by 2027. According to a recent press release from Economic Development Regina, “the GRA’s biomass play primarily focuses on the agriculture sector, and includes crops and crop residue, including canola, wheat, and flax. Those products can be transformed into bioenergy or other biomaterials.”

Growing global demand for clean energy is elevating the province’s uranium giant Cameco on the world stage, creating job opportunities in the northern parts of the province, while Saskatchewan’s potash producers, supplying a third of the world’s potash, continue to create a windfall for the province.

Against a vibrant economic backdrop, interprovincial investors, primarily from Ontario, continue to filter into the commercial market, vying for the city’s top-performing asset class –industrial—with the local business community. Vacancy rates at 1.1 per cent for industrial product have frustrated many potential buyers, especially given scarce inventory of warehousing and distribution space in sought-after industrial parks such as Parker Industrial, Ross Industrial, Tuxedo Park and the Warehouse district.

New industrial development within Regina usually involves the demolition of existing industrial facilities or building on the limited serviced land available in areas such as Ross Industrial Park. Businesses not requiring a location in Regina Proper may choose to exit the city in favor of surrounding communities where land is less expensive to buy, services are less expensive to complete, and of course, much less tax.

Higher servicing costs in the city proper have deterred developers from bringing on more serviced land in recent years, as higher costs and levy fees cannot be recouped at current market values. Neighbouring areas such as Pilot Butte and White City offer land priced at approximately $200,000 per acre for industrial projects. The cost of construction, however, can add to lease rates being a bit higher for new buildings versus existing but there are a lot of positive offsets for the new versus used.

Activity has been greatest in the $500,000 to $750,000 price range, with commercial properties listed in this sweet spot moving quickly, some in multiple-offer situations. When an owner-occupier is involved, properties will typically move above market value. Limited availability of industrial and existing multi-family within the city of Regina has influenced the uptick in values.

Vacancy rates for purpose-built rentals hovered at 1.4 per cent in late 2023, according to the Canada Mortgage and Housing Corporation (CMHC), with apartments near the University posting the lowest vacancy rates at 0.3 per cent. Just 176 units were added to Regina’s purpose-built rental stock in 2023, an increase of 1.3 per cent over the previous year Little multi-family product is available for investors, particularly in Regina’s coveted northwest corner. Properties that do make it to market are selling quickly. Cap rates on existing multi-family typically run between 5.5 per cent and six per cent.

Prior to the Federal Budget, affordable townhouse clusters with a minimum of five attached units could be found in smaller numbers in residential communities to larger projects in higher density areas. The concept is now growing in popularity with investors due to attractive financing rates and longer amortization periods as promoted and approved by CMHC, coupled with incentives including the cancellation of the Goods and Services Tax (GST) up to $1 million, and relaxed provincial sales tax (PST) for new builds. Widespread development of townhomes is expected to continue given the current housing crisis—especially in higher-volumes—but investors will now be forced to take a hard look at their long-term investment strategy given the introduction of the new capital gains tax effective in late June. There has been a slight pullback in recent weeks as investors weigh their options, with one commercial landlord taking 15 properties off the market, given the inability to sell within the deadline.

Real Estate Investment Trusts (REITs) and institutional investors are always active in Regina, but few large deals have been announced this year. Most tend to focus on purpose-built rentals and are typically prepared for a long-term hold. Several large projects are in the planning stages, with a quick glance at applications to amend zoning bylaws at the city showing a variety of proposals, including a mixed-use high rise, a townhouse-style development with 166 units and a medium-density residential townhome development for 162 units currently in the queue. The city has also taken advantage of federal government incentives to create additional housing by removing neighbourhood restrictions and allowing construction of up to six-storey apartments throughout Regina proper.

Retail has seen some exodus from the downtown core, with The Bay announcing the closure of its Cornwall Centre location next spring. Social issues in the area continue to impact retail in downtown, an area that is already seeing a reduction in foot traffic post-pandemic due to hybrid work schedules. Enclosed malls are also struggling as consumers continue their relationship with e-commerce. Most retail activity is occurring in suburban markets with strip plazas and big-box retail doing relatively well. Demand for lease space is relatively healthy, with a new mix of tenants coming to the forefront.  Increase in demand for storefront from dental and medical offices –both for sale and for lease– is evident yet little existing product is available. Lease rates are running high for relatively new retail construction in sought-after neighbourhoods, especially for start-ups.

Given the current healthy economic climate, both locally and provincially, multi-family, small strip malls, and industrial properties will continue to be the premier asset classes. Farmland will continue to perform well as strong demand exists from local farming operations, supported by the increase in commodity values. As a result, farmland values are rising with upward pressure on the price per acre.