The legalization of recreational cannabis in Canada, that comes into effect in October, has landlords across the country trying to determine if retailers in this emerging industry will be a good fit for their properties.

A new report by Avison Young, Canadian Cannabis Legislation and the Commercial Real Estate Industry: How Can Landlords Qualify Prospective Retail Tenants?, said most landlords have already made decisions about retail cannabis tenants with limited and imperfect information and the market will rebalance as the industry matures.

James Heaps, a vice-president based in Avison Young’s Calgary office, who specializes in acquisitions, divestitures and business advisory services, said the commercial real estate company has developed a request-for-qualifications framework for landlords.

“We developed a RFQ process to educate, vet and assist landlords in selecting prospective retail-cannabis tenants,” said Heaps. “As a result, landlords, and their existing tenants, are realizing the potential benefits of working with credible retail-cannabis operators and the overall potential of the recreational-cannabis industry.”

“Now that the federal government has approved the legal sale of recreational cannabis, and the competition for retail-cannabis tenants is likely to ramp up as a result, the RFQ has taken on greater importance.”

Heaps said landlords have to consider three key areas about tenants as they make decisions on who they will lease property to in the future – the leadership, the human resources and operations, and the financing.

“The leadership of the cannabis retail organizations. What they’re operational plan is. Such things as their standard operating procedures. Security protocol. Training of staff. The Alberta government does have the SellSafe program which is a four-to-six hour program for helping train staff and getting them up to speed with the proper protocol as well,” said Heaps.

“And the last piece is really the financial aspect which is recognizing all of these retail cannabis stores are startups when they open. And like any startup there’s significant capital costs up front. Part of the success will be ensuring that they’re financed properly up front.”

Calgary’s retail vacancy rate has remained in the low single-digits for many years in recent times and sometimes it’s been hard for new retailers to enter the market as they’ve had difficulty finding space.

Susan Thompson, Research Manager for Avison Young’s Calgary office, said the legalization of recreational cannabis will enhance retail real estate sales and leasing activity in Canada.

“There’s been obviously a very quick scramble to secure space because that was part of the licensing process as they had to have a firm commitment on space. So these guys need to line something up right away. And Calgary already had a fairly tight retail vacancy outside of the central business district,” she said. “So they were trying to compete for a limited number of spaces.”

She said e-commerce and in-store shopping will be closely watched as the market seeks to determine consumers’ preference levels – and cater to them.

“As a result, many new and exciting retail-cannabis-related real estate opportunities are about to unfold – and investors and landlords need to do their homework on prospective tenants,” she said.

Heaps said a considerable amount of leasing activity has already taken place in this market and leading retailers will emerge.

“Once legal retail-cannabis sales commence in October, industry leaders will likely expand by merging with and acquiring other companies,” he said. “This activity will spark demand for additional retail space, providing landlords with a second opportunity to attract and assess prospective tenants.”

Heaps said the typical size of a retail cannabis store will be between 1,500 square feet to 3,000 square feet with some even larger.

But that size of space is not always available in the market.

“They’re looking for the right demographic mix in the neighbourhood around them,” said Thompson. “They’re looking for high profile locations with lots of vehicle, pedestrian and transit around it.  And then there’s certain areas that obviously are destinations. So they’re looking at those as well.”

Calgary’s economy may have taken a beating in the past few years since oil prices collapsed in the latter half of 2014 but its luxury retail market has survived and even made some modest gains.

“In the bubble that is luxury retailing in the Calgary market, the city shines with a cluster of luxe brands in the downtown Holt Renfrew store and an emerging high-end pocket of sizzle at the CF Chinook Centre,” said Michael Kehoe, an Alberta-based retail specialist with Fairfield Commercial Real Estate in Calgary. 

“Despite the economic downturn across Alberta, fuelled by lower oil prices and empty downtown office towers in Calgary, luxury retail in the energy capital of Canada is thriving. Regardless of the level of sophistication, there is significant wealth here with a need to show it. Not that we are seeing a luxeplosion the likes of that are rocking markets across Asia but Calgary is witnessing a modest growth in the luxury retailing segment.”

Kehoe said there is a growing cadre of aspirational luxury shoppers across the greater Calgary regional district that include female executives toting their Louis Vuitton or Burberry bags and sporting Rolex watches.

“The market has moved beyond just handbags, designer shoes and jewelry. Calgary luxury retail is catering to all four segments of the luxe market: start of money, show off, fit in, way of life and the super elite shopper who strives for differentiation from the mass luxe consumer. Many super-elite shoppers in Calgary prefer to travel to shop or buy online,” he said.

“CF Chinook Centre peruses luxe with an emerging higher-end tenant cluster led by a new Louis Vuitton store set to open in 2018. The international brands enjoy the synergistic traffic benefits of being nestled in by Nordstrom and Saks Fifth Avenue as the retailing stars align with the Chinook landlord’s vision, patience and deep pockets. Some of the basic elements are in place at Chinook with the city’s only Canada Goose and Tiffany & Co. stores among others. The Chinook Nordstrom store focuses for the most part on their house brands with a mix of designer labels and a Saks Fifth Avenue that is still finding its way.”

He said the city’s significant Rolex offering is currently situated in the Maison Birks store in downtown Calgary at the CORE shopping centre and not at Chinook Centre.

Kehoe added that Chinook could double down on luxe and land standalone boutiques like Givenchy, Celine, Gucci, Prada, Moncler, Valentino or the House of Prada’s Miu Miu. Most of these brands are represented at Nordstrom and/or Saks but featuring these brands at CF Chinook would significantly differentiate the Centre from the downtown Holt Renfrew.  

“And that is how the luxury shopping battle will be won,” said Kehoe, who is a commercial real estate professional with more than 40 years of experience in the retail real estate field.

Kehoe worked for many years as a mall manager, marketing director and retail leasing executive. He is an Ambassador for the New York-based International Council of Shopping Centres where he has been a member since 1982.

Darryl Schmidt, vice-president of national leasing at Cadillac Fairview, said the downturn in the economy has caused many luxury retail brands to take a pause on the Calgary market.

“But that’s starting to change in the last six to 10 months. So we’re starting to get more traction. There was a great global focus on Asia and high tourist areas that that Asian population would frequent from the luxury brands. And now that they’ve kind of filled in that element of their network they’re starting to broaden their reach and look at other markets they feel a need to have a presence in. And Calgary is finally on that radar screen again,” said Schmidt.

“We still have some of the highest average household incomes in the country. Some of the highest disposable incomes in the country. And we’ve seen good success from Nordstrom and some solid initial success from Saks. And that kind of puts it back on everybody’s radar screen in terms of a market that they need a presence in or need to round out.”

Besides Louis Vuitton, Schmidt said a deal has been done with fashion retailer Mackage for CF Chinook Centre.

“We’ve got some other groups but it’s a little too premature (to announce). We’re negotiating with them right now. If you get a critical mass of luxury, it begets more luxury. They like to cluster together. There are true synergies in having flagship stores side by side. It creates a better shopping experience for the customers and the retailers benefit from that,” added Schmidt.

ZaZaZoo, the plush animal ride rental company which launched its innovative new concept a few years ago in several Canadian shopping centres, now has a new way of entertaining kids in those malls.

The company recently launched ZaZaPlay, an active motion playground, in the St-Laurent Centre in Ottawa, with plans to expand the innovative game for kids entertainment to malls across Quebec and Ontario this year.

Sonny Juane, director of operations for ZaZaZoo, which is based in Gatineau across the river from Ottawa, said ZaZaPlay is a light-projected interactive experience where participants can choose from a variety of single or multi-user games.

He said it uses the latest technology in object recognition sensors to provide a unique experience for both active users and walk-by spectators.

“We launched there. We’re going to assess basically how we deliver the service and the process. What’s the best way to deliver it? And then what we’re going to do is we’ll be expanding it to other locations.”

“In some malls the plush animal rides, for example, it’s much more difficult to implement in multi-level malls. It’s much more difficult if they have narrow hallways for example. So we were looking for additional entertainment that we could implement there without necessarily having the plush animal rides.”

Juane said the goal is to expand the concept as quickly as possible into as many locations as possible.

ZaZaZoo Plush Animal Ride Experience is Canada’s number one supplier of Plush Animals Ride Rentals.  The company, which began operations in 2015, provides rides for shopping malls and special events. Its goal is to enhance the customer shopping experience by providing unique entertainment that can be enjoyed both by children and parents alike.

“We originally started out with the plush animal rides. They’re motorized children’s rides,” said Juane. “They’re like furry animals. Around the mall. We started getting requests from mall managers looking for other types of different experiences for them.”

“As you know the retail industry has gone through this kind of transition right now and they’re trying to figure out how to basically increase foot traffic. So our timing was awesome. They didn’t know what they wanted but we kind of filled that void at that point.”

Juane said the company’s general goal has always been quite broad. It’s trying to provide engaging and interactive experiences to draw more families into shopping centres.

ZaZaPlay is in a set kiosk space.

“We play different types of games like digital soccer and hockey. There’s like a Hungry Hippo style game but they’re dragons. So Hungry Dragon,” said Juane. “We use cameras to detect body and motion movement from children.”

“The idea of doing interactive digital video we kind of contemplated because our goal is to get kids more active. To get their faces out of tablets and everything else. We’re doing an interactive video . . . versus physical activity but we’re finding it’s great because the way it’s used it creates activity. The rides are great. They’re awesome but it’s really for kids riding around the mall. There’s not a lot of physical activity. While this one is very, very active.”

The company was founded by Melanie Lafreniere. Her idea was born after realizing that some children may not be too excited about spending time in malls and that would influence the time parent’s spent shopping.

Zazazoo launched at Les Promenades Gatineau in November 2015.