Canadian retail development is entering a new phase defined by higher costs, cautious consumer spending, and more sophisticated data-driven decision making. Those themes were front and centre during conversations at the ICSC Whistler conference in late January 2026, where industry professionals gathered amid strong attendance and a cautiously optimistic tone around leasing activity.

CCIM Institute 2026 Global President Adam Palmer said the economics of building new retail space have fundamentally changed since the pandemic, forcing developers and tenants to rethink their assumptions about rent, margins, and store expansion.

“It really started during the pandemic,” Palmer said in an interview on the trade show floor. “You saw rapidly increasing construction costs and labour costs and everything else, even the soft costs on getting a project done. It all just inflated and skyrocketed.”

While some expected those increases to be temporary, Palmer said the industry has largely accepted that costs have reset to a new baseline.

“Many people thought that might go back to where it was, but obviously it never did,” he said. “There was maybe a blip correction, but it really became a new normal. We had to embrace that new normal and figure out a way to pencil deals.”

Higher land prices, rising construction and labour costs, and increased engineering and service expenses have all combined to drive up development budgets. At the same time, investors have raised yield expectations, further tightening project economics.

“When you run all that math together, the net base rents required are much higher,” Palmer said. “Then the question becomes how tenants are going to justify those rents.”

A three-way tug of war over rising costs

The result is what Palmer described as a persistent tension between developers, retailers, and consumers, each facing difficult trade-offs.

Many retailers, particularly large chains, still operate under expansion targets that require a certain number of new store openings each year. However, higher rents and construction costs are eroding profit margins.

“That started to cut into some of their profits,” Palmer said. “Then it becomes a question of what are we going to sacrifice. Are we going to sacrifice on not meeting our quota of new units, or sacrifice on our expected margin, or try to pass that along to the consumer and expect them to pay more?”

This dynamic has created what he described as a constant balancing act across the industry.

“It seems like there’s this constant tug of war going on between the developers, the tenants, and the consumers,” Palmer said. “Where’s that sweet spot, knowing that everybody’s contributing to the pain a little bit.”

The pressure is unlikely to ease in the near term. In addition to lingering construction cost increases, global uncertainty around tariffs and trade has introduced another layer of unpredictability.

While Palmer stopped short of making firm forecasts, he noted that basic economic principles still apply.

“More often than not, that gets passed on to the consumer,” he said. “The supplier and the acquirer both have margin requirements. It’s almost basic econ 101. You try to stretch that and pass it on to the consumer as much as possible, unless your product isn’t selling.”

Essential retail continues to outperform

Despite the challenges, certain types of retail properties are performing strongly, particularly those anchored by necessity-based tenants.

Palmer said Canadian consumer spending patterns still reflect a degree of caution that has persisted since the pandemic, even as the economy has stabilized.

“You wouldn’t necessarily label it as recessionary spending, but certainly cautionary spending,” he said. “When that cautionary spending still exists after five years, you could point to data suggesting that it has limited some of the amount of sales in what might be labeled as luxury acquisitions or discretionary services.”

In that environment, necessity-based retail continues to outperform.

“If you subscribe to that suggestion, then it shouldn’t be any surprise that some of the assets performing the best in Canada are the ones that are most essential to people,” Palmer said. “You look at grocery-anchored centres that have essential services as their inline space. Those are the ones continuing to perform because those are the ones Canadian residents are not willing to cut back on.”

That observation aligns with performance data from several major Canadian landlords, where necessity-based centres have reported high occupancy levels and stable traffic.

Canada and the United States remain structurally different

Palmer also noted that the Canadian and U.S. retail real estate markets continue to operate under different structural conditions.

Canada has less retail space per capita than the United States, and it has not experienced the same scale of so-called “dead malls” that have emerged in some American markets. At the same time, Canadian cities face unique challenges around affordability and development economics.

“There’s a lot that’s done differently,” Palmer said. “In some markets across Canada, there’s an affordability issue that makes it difficult for essential service workers to live in certain parts of the city, even though they need to work there.”

He pointed to workforce housing programs in parts of the United States that incentivize developers, sometimes through bonus density, to include attainable housing for essential workers. Such programs, he suggested, could offer useful lessons for Canadian cities facing affordability pressures.

Data and predictive analytics reshape site selection

At the same time that development costs are rising, technology is beginning to transform how retail locations are chosen.

Palmer, who worked in software before moving into commercial real estate, said the industry is only starting to tap into the potential of advanced analytics.

“Commercial real estate is an industry that’s just started to scratch the surface on how to better use technology,” he said. “We’re providing a deeper and different level of analytics than we’ve ever looked at before.”

In the retail sector, predictive modelling is becoming more common, allowing developers and tenants to forecast store performance years into the future.

“You’re going to see more analytics on predictive modelling to figure out what future sales might look like at a particular location ten years from now,” Palmer said. “Not just based on recent data, but by peeling back the onion on a geography and understanding whether it’s emerging or declining.”

Modern datasets can even reveal highly specific consumer behaviours within small trade areas.

“The data available today is specific enough to figure out what percentage of a population within a certain radius is drinking bourbon, and how often,” Palmer said. “Retailers are just starting to learn how to play those averages and position themselves for success.”

Experiential retail adds new cost considerations

Another evolving trend discussed at the conference was the expansion of experiential retail beyond traditional entertainment concepts.

Palmer noted that the definition of experiential retail has broadened significantly. Where it once referred primarily to arcades, escape rooms, or virtual golf venues, it now encompasses a wider range of store environments.

“Conventional retailers, whether it’s apparel or even wealth management, are trying to create a different kind of customer experience,” he said. “More of a lounge or coffee shop feel. They’re trying to make it a stickier experience so customers want to come back.”

However, these experience-driven concepts often require more complex and expensive store build-outs, adding another layer to the cost equation.

“When retailers want to reimagine their concept, that requires new build-out,” Palmer said. “Then the question becomes who’s going to pay for that. Is it the tenant or the landlord. And we’re right back to the conversation about rents, yields, and construction costs.”

A new equilibrium for Canadian retail development

Taken together, rising construction expenses, cautious consumer spending, and the growing role of data are reshaping how retail projects are planned and executed across Canada.

While leasing activity at ICSC Whistler reflected continued demand for space, the conversations also underscored a more disciplined and analytical approach to expansion.

Developers, retailers, and investors are all adjusting to higher Canadian retail development costs, and to an environment where site selection, store design, and capital allocation must be more precise than in the past.

The result is not a halt in development, but a recalibration. Projects are still moving forward, but they must meet tighter financial thresholds and respond to evolving consumer behaviour.

As Palmer put it, the industry is still searching for the right balance.

“There’s always that tipping point,” he said. “Time will tell where it lands between the consumer, the manufacturer, and everyone in the middle.”

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