If you build it, they will come – but your city’s vacancy rate is going to shoot up.
That’s the lesson learned in Regina, which saw nearly 400,000 square feet of new office space added a couple of years ago with the construction of projects known as Tower Three and Agricultural Place, and has only now started to emerge from the trough.
According to a second-quarter industry report on the city’s office sector, the vacancy rate has fallen to 12.4 per cent, down from 13.2 per cent last year.
Michael Kelsey, associate vice-president and a broker in Colliers International’s Regina office, said the high rate is purely a result of the new construction and doesn’t reflect the true state of the city’s economy.
“We were the lowest [vacancy rate] in North America for three or four years in a row before we were the highest. It could be misinterpreted that our market is flocking out like in Calgary. We haven’t had any layoffs,” he said.
Kelsey predicts it will take two to three years until the market becomes balanced again. Until then, tenants are in the driver’s seat. The competition among landlords to attract businesses is causing inducements ranging from six months of free rent to cash to pay for improvements.
“They have to dive for quarters for a while,” he said.
Demand is higher for Class A space, which has a vacancy rate of about 8.7 per cent, while Class B is nearly twice that.
“Companies want the high-profile space and the spaces they’re leaving need to be back-filled. There is a glut of Class B space on the market,” Kelsey said.
