Saskatoon offers upside investment potential

Monday, March 28, 2016

Newer purpose-built apartments appear to have gained the competitive edge in Saskatoon’s slumping rental housing market. However, industry analysts suggest the current surge in vacancies presents landlords with an opportunity to reposition their properties for the return of better economic times.

Colliers International’s newly released multi-family market report pegs the citywide rental vacancy rate in the range of 7 to 8 per cent — higher than Canada Mortgage and Housing Corporation’s (CMHC) findings, which reported a 6.3 per cent vacancy rate in the fall of 2015. Average rents for two-bedroom units also slipped slightly, from $1,091 in 2014 to $1,087 in 2015, representing the first time since 1989 that they had not increased from the previous year’s level.

A booming economy and six consecutive years of population growth from 2008 to 2014 underpinned low vacancies in a city where purpose-built rental units are, on average, 49 years old. The economic downturn has now curbed this trend, giving tenants more choice and negotiating clout.

“New inventory has increased the standard for rental units in the city and tenants are making a flight to quality because new buildings offer improved amenities, premium finishes and state-of-the-art layouts,” the Colliers report states.

These newer units are renting at above-market rates, while prospective tenants are obtaining rent and security deposit discounts in older buildings. Nevertheless, forecasters maintain Saskatoon offers upside investment potential, building on current easy access to capital and low interest rates.

“The prevailing market conditions could be a blessing in disguise as the vacancy in existing properties could provide owners the opportunity to re-life suites and modernize buildings to compete with new inventory,” the Colliers report contends. “Many existing properties have the advantage of location, providing improved access to major institutions such as the University of Saskatchewan, in addition to superior access to transit services.”

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