Where do Saskatoon industrial lease rates go from here?

Oil and gas prices will continue to drive economic growth in SK and AB through 2024, according to the Conference Board. Saskatchewan will also benefit from higher prices for commodities such as wheat and potash.

Saskatchewan is reported to lead our country in 2022 with a growth of 7.6 per cent.

However, we’re experiencing inflation at a rate we’ve not seen in the past 15 years.

The cost of construction and land has been rising.

There is a shortage of labour which is putting pressure on construction wages.

The logical conclusion is that the cost to lease industrial real estate will likely break through to a new high in the months ahead.

Whereas the current average rental rate according to our 2Q22 Industrial Market Survey is $11.82 PSF, we know that a developer needs to see a $13.50 PSF net effective rate on shell space to justify building new warehouse today.

Let’s look back in time

There was a 20-year period before 2005 in which warehouse rental rates flatlined.

I know of one example where a Saskatoon industrial tenant renewed their lease for four five-year periods at $4.50 PSF net.

They may have been a bit on the high and sometimes on the low side, but their rate did not move over 20 years.

The fact our net effective industrial rates have been bouncing around in the same territory for almost ten years is fascinating.

Between 2007 and 2012, the average rate jumped from $5.62 PSF to $11.21 PSF.

That’s very close to a 100 per cent increase in seven years. Could it happen again?

If you put seven different economists in a room and asked that question, you will get seven different answers.

Economies of scale matter

When quoting average rates, it’s important to mention that there can be a considerable difference in price between 2,000 SF and 200,000 SF.

There are significant economies of scale in construction costs that must be factored in.

Amount of spec building will influence the future

If you came to me today and wanted to lease a new warehouse, it would take one full year to complete the project due to labour and supply chain issues.

ICR’s 2Q22 market analysis reports an average vacancy of 2.52 per cent.

It worsens if you isolate that statistic to the Marquis area (our main industrial area in Saskatoon), where the current vacancy is just 1.83 per cent.

If we do not see more spec building, the resulting supply/demand factor will affect those rates in a way we’ve not seen for over ten years.

It’s going to be very interesting to see where the line on this graph moves to in the next five years!

Carrying the Mission, Vision & Values through corporate leadership

I firmly believe that the most crucial job a leadership team has is to design and implement strategies to see the organization grow and flourish in the long term.

About four years ago, we completed the soft rebrand of ICR.

We didn’t set out to significantly alter our corporate image and logo, but we knew we needed a refresh.

It took time to engage the stakeholders within four different departments to develop our Mission, Vision, and Values statements that represented us all equally.

How does leadership facilitate that discussion about why we do what we do? We struggled with this question, but eventually, we were able to develop an idea and implement it.

Earlier this year, I discussed this solution in my “Conversations over Coffee” with Jana Dutton.

We decided to order pizza or subs and facilitate staff luncheons in small groups to discuss our “why.”  We attempt to include a few individuals from each department at each luncheon to provide a diversified discussion.

It’s been great working with Anna Kalyta, Craig Kuse, Danielle Webster, and the entire staff on this project.

We take each element of our Mission, Vision, and Value statements and share company stories around them, inviting everyone to participate in the discussion.

We then go through a simple exercise that allows each individual to identify their top three personal values.  We believe it’s essential to determine how closely the personal values align with the company values.

When my values are reflected in my work, I’m in flow. I love what I do when I feel I’m contributing to my client’s goals and fulfilling my values.

Plenty of research shows we are significantly more engaged and in flow when our values and our company values align. We are exponentially more productive and enthused about our work.

The luncheons have been fruitful.  We hope to continue these sessions as part of the onboarding process for new employees.  We’re considering other creative ways that we can continue the discussion as the company continues to grow.

Here’s a synopsis of what’s important to us:

VISION: Why do we exist as an organization?

We exist to propel our clients towards prosperity.

I can get excited about a purpose that sees you profit, thrive, and grow. What is your primary purpose in life? How can I be a part of your success in getting there? I can think of an excellent client whom I asked that question several years ago. He has far exceeded that goal, and I have been a part of that journey. It’s a rewarding feeling!

MISSION: What do we do as an organization?

We secure exceedingly smart real estate solutions for our clients.

The reason we win business is that we brainstorm the solutions collectively. They are we, not I solutions.

VALUES: How do we do what we do as an organization?

We offer every client, tenant, partner and colleague the ICR handshake, our unique five-fold approach to growing trust as we do business.

The five fingers on the hand that offers to ‘shake on it’ represents our deeply held beliefs that underpin everything we do – Territory, Results, Unity, Solutions, and Trustworthiness. It spells out TRUST.

The traditional handshake remains one of the most powerful symbols. Those three words – shake on it – resonate with meaning, whether it’s two small boys in the playground coming to a mutual agreement after arguing about marbles or two world leaders desperately trying to avert a war.

The handshake most likely came into being in the Middle Ages when knights would extend an open hand to each other, demonstrating that they were not carrying a weapon. They were coming in peace and crucially, they would honor that peace. Shaking hands is an affirmation of something honorable, a statement of intent. Handshakes are dignified. A handshake says, “I give you my word.”

TERRITORY: (I love this…) We believe in the sacredness of space.

We know that every individual, company, and organization needs its own territory – a place where it can dream, create, produce and give expression to all that it is and longs to be.

We help others to find, manage and flourish in their territory. Simply put…we’re in the business of giving clients their space.

RESULTS: We constantly look for ways to accelerate the success of the people we work with – whether that’s our clients, tenants or colleagues.

UNITY: Unity is not conformity. It is agreement on the important things.

At ICR, we strive toward that kind of unity. That is why we lend the experience of senior staff to Property management and Sales and leasing while at the same time instilling in each individual a sense of ownership of their job.

Unity is required for collaboration, and collaboration, can, at times, be difficult.

SOLUTIONS: We’re a highly experienced commercial real estate company with unsurpassed knowledge that allows us to offer smart and perfect solutions.

Our experience and ear-to-the-ground knowledge shows – and counts.

TRUSTWORTHINESS: From that first phone-in to the final deal, from that initial meeting to our ongoing property management partnership, transparency and commitment overarch every touch-point.

This Globe and Mail graph demonstrates that “High Trust Companies” consistently outperform nearly three times better than the general market:

In the research that I have done, there is overwhelming evidence to show that Organizational Health is the most significant factor determining an organization’s success.

As we continue to evolve, we will see this company flourish and have fun doing it!