Recently JLL released its Retail Market Dynamics Fall Report, highlighting that retail construction starts fell 44 per cent in 2026 to a decade low, with space under construction dropping to about five million square feet.
As the pipeline shrinks, Canadian businesses may find it harder to secure retail space, particularly in growing communities where demand for everyday essentials is strongest, said JLL.
In a market where developers are scaling back, the projects that are succeeding are neighbourhood centres and general retail focused on storefront shopping and everyday needs, while malls and power centres are finding little traction, it noted.
Other key insights include:
- While retail rents continue to rise, slower rent growth could bring retailers some relief, even as competition for well-located space stays strong: Annual asking rent growth has eased to 2.5 per cent from a peak of about five per cent in 2022, and effective rent growth has dipped slightly to three per cent. While leasing is still getting more expensive, limited new supply means well-located storefronts will remain competitive.
- Grocery retail developments continue to be the overwhelmingly preferred anchor when it comes to daily-needs developments in Canada: Grocery stores anchored 96 per cent of daily-needs centres completed since 2022, up from 74 per cent between 2016 and 2021. Over the same period, mass merchandise anchors fell from 19 per cent to four per cent and pharmacy anchors dropped from seven per cent to none, as developers bet on the weekly grocery run to drive traffic.
- High-growth suburbs and transit-oriented corridors are creating new retail opportunities: As population growth pushes into the suburbs, demand for everyday retail is following. Calgary has been Canada’s most active daily-needs development market over the past decade, with Toronto and Edmonton close behind, while new transit projects like Toronto’s Ontario Line, Vancouver’s Broadway Subway and Montréal’s REM are bringing fresh foot traffic to key corridors.
In an interview with Retail Insider, Paul Ferreira, Senior Vice President, Retail at JLL, offered some insights about the market and the report.
What is driving the 44 per cent decline in Canadian retail construction starts in 2026, and what does the decade-low level of new construction indicate about the outlook for retail space?
There are a combination of factors. Firstly, in many markets across Canada new projects just have not been penciling for some time. Development costs including land, construction and municipal reached a point where the rents many retailers can afford to pay can’t support the pro-formas.
We also saw a period in recent years where many of our existing shopping centres were deemed mixed-use redevelopment opportunities and many landlords prioritized preserving their future flexibility to redevelop these properties over committing to new long-term deals or adding new retail space. Many municipalities themselves have been encouraging this trend while at the same enacting planning policies that discourage traditional single-story retail that is often preferred by retailers.
At the same time a significant portion of the pipeline of new retail space in our major markets was proposed within new mixed-use projects. Part of the fallout of the collapse in the high-rise residential development sector is also the delivery of new retail space in those same mixed-use projects.
The decade low level of construction is more a byproduct of the fallout in the residential development market together with the increasing input costs to develop and construct in this era. The overall demand for retail space is still strong.
With only about five million square feet of retail space under construction, which types of retailers and markets are likely to face the greatest challenges securing well-located space as the supply pipeline shrinks?
Our major markets will continue to feel the retail supply squeeze as there does not seem to be much moderation in costs and many landlords seem prepared to ride out the development cycle until mixed use projects work again rather than make new long-term commitments to more traditional retail projects.
Why are neighbourhood and daily-needs centres attracting more development activity than malls and power centres, and what does this shift tell us about how Canadian consumers are shopping?
Developers are concentrating on necessity-based formats anchored by grocery, pharmacy, and discount stores as these retail categories have historically demonstrated exceptional resilience and as a result this asset class continues to outperform other retail asset types.
This shift reveals that Canadian consumers prioritize convenience, value, and frequency and continue to value the bricks and mortar shopping experience in these retail categories. Combining grocer, pharmacy, and discount retailers captures recurring household needs in a single trip, aligning with how families allocate spending today in the face higher costs, and time scarcity.
Grocery stores anchored 96 per cent of daily-needs centres completed since 2022. What is driving the growing dominance of grocery as a retail anchor, and how is this affecting the tenant mix and design of new developments?
Grocery stores anchored 96% of daily-needs centres completed since 2022, up from 74% between 2016-2021, driven by grocery’s unmatched performance through economic volatility, consistent cash flow generation, and predictable foot traffic across all income segments. The pandemic solidified grocery-anchored assets as low-risk, institutionally favored investments, strengthening conviction as discretionary retail faces headwinds from e-commerce and cautious consumer spending.
This dominance is reshaping developments toward compact, efficiency-driven layouts maximizing inline synergies with complementary necessity tenants—pharmacies, dollar stores, quick-service dining—rather than discretionary concepts. Western markets build larger formats with broader anchor mixes while Eastern centres trend toward tighter, higher-density configurations, with discount stores present as complementary anchors in over one-third of new centres, reinforcing the value orientation driving development.
Which Canadian markets and emerging suburban or transit-oriented corridors offer the strongest opportunities for retail development over the next several years, and what factors will determine whether those opportunities translate into new projects?
Calgary, Toronto, and Edmonton, representing nearly half of all daily-needs centres built over the past decade, remain the most active markets, with high-growth suburban corridors including Northeast Calgary, South Edmonton, Halton Region, and Surrey-Langley offering the clearest near-term opportunities due to rapid residential construction, accessible land, affluent demographics, and sub-2% vacancy. Long term, the biggest factors in seeing new projects get off the ground will be a return of the mixed-use high rise development market in our major markets and sustained population growth and relative moderation of costs in our smaller markets.
Transit-oriented corridors present compelling medium-term plays: Vancouver’s Broadway Corridor has catalyzed 8,400+ new homes and 1.9 million square feet of development since 2022, while Toronto’s Ontario Line, Montréal’s REM airport connection, and Ottawa’s O-Train extensions will channel foot traffic to major retail strips.
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