Saskatchewan’s new assessment cycle reflects prosperous times since June 30, 2006, the previous benchmark date for valuation. Across the province, property values increased an average of 67 per cent upon the recent reassessment, based on Jan. 1, 2011 values.
Resulting increases will now be phased in over the first three years of a four-year assessment cycle, which stretches to 2016. However, as is almost always the case with reassessment, the average hides even more dramatic tax shifts within property classes.
“We manage about 55 commercial buildings in the province. Our lowest increase is 30 per cent in value and our highest is 209 per cent,” reports Steve Enns, vice-president of property management at Harvard Developments Inc.
“The Saskatchewan economy took off – and I mean really took off – after the last base date, particularly on the residential side, but commercial took off too,” says John Hopkins, CEO of the Regina Chamber of Commerce. “The new value is capturing all of that economic growth and a lot of the increase in value we’ve seen in the last number of years.”
The Saskatchewan government has now scrapped its former three-tier structure for applying education tax in the commercial/industrial property class and, instead, separated out resource properties – mining, oil and gas – as a new distinct tax class. This is designed to mitigate some of the tax shifts that were forecast due to differing degrees of increased value among properties in the broad-based class but the actual tax impact won’t be known until the education tax rate is announced in the provincial budget.
“The data shows there was going to be a very significant shift from rural Saskatchewan to urban Saskatchewan, and part of that came as a result of the tiers,” says Hopkins.
Beyond regional disparity, critics maintain tax rates tied to the property’s category, or tier, actually penalized some of the taxpayers that the Province originally intended to support through the measure.
“There were some unintended consequences, especially for smaller businesses that rented space in big commercial buildings. The retailer on the main floor of an office tower that sells the same products as the retailer in the single-storey building across the street was paying three-and-a-half times as much property tax,” says Harvard Developments’ Enns. “We feel moving to a single mill rate (for education) will be positive for commercial real estate.”
Escalating values translate into a heightened tax burden for commercial/industrial properties, which are taxed as mandated by provincial legislation at 100 per cent of value. In comparison, residential and multi-residential properties are taxed at 70 per cent of value, cultivated agricultural land is taxed at 55 per cent of value, and range/pasture land is taxed at 40 per cent of value. Municipalities can further aggravate the tax gap in applying mill rates and/or establishing the tax revenue apportionment for residential versus commercial/industrial classes.
“In Regina, the residential component of the tax base has increased significantly more than the commercial but council hasn’t adjusted the apportionment to reflect that,” says Enns. “If there has been significant growth in the number and value of residential properties, this should be reflected.”
Adjustments to the evaluation model have also caused shifts among commercial properties. In the previous cycle, assessors applied a discount factor on buildings built prior to 1969, but in the new cycle, the discount was applied only on buildings built prior to 1943. While newer Class A buildings experienced the greatest jump in value with the previous reassessment, this time, Enns reports that Harvard’s Class B and C portfolio has seen value increases in the range of 38 to 98 per cent.
“Last time, they got a base rent reduction because that was the market in 2006,” he recalls. “Now, we are seeing a much greater increase in the older offices and retail. There is a real shift to the older properties.”
Times are undeniably good for building owners and managers in the province. Avison Young pegged Regina’s Class A office vacancy rate at 1.42 per cent in January 2013, with the overall vacancy rate at 4.24 per cent. In Saskatoon, Colliers International reports a 3.34 per cent office vacancy rate.
Colliers also reports average Class A net rents of $24.70 per square foot in Regina, and $25 per square foot in Saskatoon, with 7 per cent cap rates in both cities. This is well below average Class A net rents of $42.62 in Calgary, or $35.10 in Vancouver, but outperforming markets in Edmonton, Montreal, Victoria and Halifax.
Yet, Enns is careful to frame today’s boomtown status in the context of market size and the historic lag that left a lot of ground to be recovered.
“We are experiencing the best economic times we have ever had in the history of the province. Economically, we are firing on all cylinders right now,” he says. “But our entire provincial population is less than the size of Calgary. When it comes to values in real estate, we have just caught up with the median in the country.”
Barbara Carss is editor-in-chief of Canadian Property Management magazine.