Saskatoon is seeing Calgary-level office vacancies rates in its downtown business district as Class A space hit a 31.8 per cent vacancy in the second quarter (Q2), according to Cushman & Wakefield, and Class C offices were nearly 25 per cent empty.
This was down from a starting 40 per cent vacancy at the same time last year, as major tenants completed moves into the city’s first Class AA office towers, the Nutrien Tower and the East Tower at River Landing.
“Class-A [space] is in recovery mode,” Cushman & Wakefield noted in the Q2 2023 CBD Office Marketbeat report for Saskatoon.
The Class-A office sector represents the second-largest space in the city, at 717, 333 square feet. More than 228,400 square feet of that is now vacant.
Another blow to the downtown office sector is a migration to suburban markets.
Medical office tenants, in particular, are transitioning from the downtown to suburban locations throughout the Saskatoon. Parking availability, building access and proximity to residential neighbourhoods are the primary reasons for the movement of medical to the suburbs, according to the report.
Traditional medical office buildings vacating downtown account for the recent rise in Class C vacancy increasing from 18 per cent vacancy in Q2 2022 to 24.1 per cent by Q2 2023. Currently, 237,877 square feet of Class C space is empty.
The City of Saskatoon bought two central business medical office buildings in Q2 2023, acquiring Midtown Medical at 39-23rd Street for $5.2 million and Pacific Medical at 149 Pacific Avenue for $4.75 million.
Council approved buying downtown buildings and land for the future home of the city's new arena and entertainment district.
A new downtown office building completed construction by the 2nd Quarter of 2023 adding 36,848 square feet of vacant office space to the downtown inventory.
To attract tenants, Class C landlords decreased net asking rate by 15 per cent in Q2, but vacancy continues to increase, rising from 21.4 per cent in Q1 2023 to 24.18 per cent in Q2 2023.
Average net rental rates for Class AA remained firm at $34.00 per square foot; Class A is $25.07; Class B $19.65; and Class C is leasing at an average of $17.17, down from $18.78 per square foot in Q2 2022, Cushman & Wakefield reports.
