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Vacancies drop as Regina office tenants hold the course

Steady demand, no new construction help market improve
Steady demand from tenants but "questionable optimism" characterize Regina's office market as vacancies inch down.

A lack of new construction helped tame Regina’s office vacancy rate in the first quarter of 2023, supporting lease rates for top-class space.

Avison Young reports that Class A space in the city ranges from $22 to $34 per square foot, with an average asking rate of $24.91 per square foot in January 2024.

Tenants have been willing to pay up for good quality of space, too, with Class A space enjoying a low vacancy rate of 8.8 per cent. This compares to an overall availability rate in the market of 15.5 per cent in the first quarter, down from 17.75 per cent a year earlier.

“This is due to minimal supply with no signs of new construction on the horizon,” Avison Young reported.

Dale Griesser, an associate broker with Avison Young specializing in office leasing, said tenants whose leases are up for renewal haven’t been downsizing but there’s been few new entrants to the market, either.

BHP Billiton’s investment in the Jansen potash mine as well as plans for several canola crushing plants in southern Saskatchewan have yet to give the Regina office market a boost.

“The real stable entity in the Regina office market is the provincial and federal government,” Griesser said. “We are not currently seeing a shrinkage in the footprints that either the federal or provincial governments are occupying.”

The same is true of private-sector tenants, who are largely comfortable with the space they have. Griesser expects any new lease commitments related to the canola projects will come when those projects near completion.

“It will occur in the future, but today there is no significant new space requirement,” he said. “Our year-over-year absorption is approximately 110,000 square feet, which is pretty good, but we’re still at 15.5 per cent vacancy, and it’s going to be a very, very slow walk to decrease vacancy in the near future.”

Griesser would like to see vacancies approaching 10 per cent.

“It would still give tenants options for relocation or entering the market, and it would give landlords a reasonable return on their investments,” he said.

A flight to quality among tenants and landlord incentives have helped reduce Class A vacancies, but the flip side of this has been persistently high vacancies in Class B and C space.

“Regina’s Class C leads all classes with the most distressing vacancy rate of 20.4 per cent,” Avison Young reported, noting that asking rates average $14.89 per square foot. However, landlords are asking as much as $19 per square foot for the space.

“Converting or retrofitting vacant office space to residential rental units is an option that would take some vacant spaces out of office inventory,” Avison Young noted.

Griesser hopes that Regina council will consider incentives to remove vacant office space from the market, ideally through conversion to residential.

Regina has yet to announce a program to reduce office vacancies similar to what Calgary implemented in 2021, however.

The city had a total of 726,000 square feet available at the end of January across all classes, Avison Young reported.

With the market continuing to favour tenants, Avison Young believes “optimism remains questionable” for the city’s office sector.