As e-commerce continues to chip away at major regional shopping malls and big box retailers, neighbourhood shopping centres – for the first time in two decades – are now outperforming their much bigger cousins in both total annualized returns and national vacancy rates, according to GWL Realty Advisors.
The company has recognized that grocery stores, food and personal care retailers have proven to be considerably less vulnerable to online competition and powerful demographic and societal forces are also driving the robust performance of modern community shopping hubs.
GWLRA, with a retail portfolio of about $1.3 billion, is strategically investing in food-anchored neighbourhood shopping centres. It has invested $250 million in these smaller retail centres in the past 24 months. It is also planning major future investments in community retail hubs.
“Neighbourhood shopping centres catering to ‘needs of life’ with grocery stores, pharmacies, restaurants and experiential food destinations appealing to millennials and ethnic communities are proving to be resilient and profitable investments,” said Steven Marino, Senior Vice President, Portfolio Management, GWLRA. “Modern community shopping centres are less vulnerable to large-scale e-commerce and offer investors long-term income growth and potential capital appreciation.”
Anthio Yuen, Director, Research Services and Strategy for GWLRA, said the rise of millennials, dual-income households and single person households are changing retail consumption patterns across Canada.
“With less time, smaller household sizes and a focus on experience, retail centres that use food as a strategic advantage are poised to win in our changing retail environment,” he said.
“People are demanding more quick service and full-service restaurants as a result of longer term shifts around the consumption of food – shifts in spending patterns. But you’re also seeing a lot of these humble centres start to add in more experiential type uses and starting to cater to a range of personal services. The grocers themselves becoming more community hubs of experience but also hubs of fulfillment. So you are seeing a reinforcing amount of demand going back to these food-anchored centres.”
GWLRA said high demand for experiential retail destinations among millennial consumers, coupled with busy family schedules that limit time to cook at home, means dining out will continue to gain popularity. Quick-service food options in local shopping centres are also expected to see substantial growth as are full-service restaurants and new grocery concepts called “grocerants” where shoppers can dine-in, buy fresh groceries or purchase prepared meals in one location.
Yuen said there are some key societal trends that are impacting the retail and real estate markets. There are more single person households in Canada today than there were in the past. There is also a rising visible minority share. And there are more dual income households.
“There’s generally less time for food preparation and consumption of food. As a result of that, grocers are starting to shift where they’re providing more delivery options, online options, click and collect. They’re also offering more grab and go concepts but then also to reinforce the other aspect of food in these grocery-anchored centres you are seeing more demand for full as well as quick service restaurants,” he said.
GWLRA said successful, next generation neighbourhood centres will be characterized by:
● Highly accessible locations and plentiful parking in increasingly varying forms, including ample short-term parking near pickup depots to support ‘click and collect’ and ‘grab and go’ shopping;
● Design features to promote active storefronts, particularly for food retailers, along with human elements to support pedestrianism. Examples include patio and outdoor dining; grocery storefront produce displays and curated walking paths;
● Centres that focus on a mix of uses, experiences and amenities, including commercial services, health and fitness and activity areas for children; and
● From an infrastructure perspective, loading areas to support increased e-commerce and rapid fulfillment needs.
“You’re starting to see a lot of those shifts already where there’s a focus on pedestrianism, mixed-use, active store fronts and I think a big focus, especially in the suburbs, will be a focus on family and community based activities with a lot of the enclosed shopping centres leading on this front. A lot more use of digital technology to support shopping experiences and connecting shoppers with community retailers,” said Yuen.
“I think a lot of people have thought that tech was reserved for the largest, super-regional, enclosed mall but that can also be integrated into almost any type of open air neighbourhood centre.
“From a functional perspective, you are seeing centres sort of add different parking, access points to accommodate things like click and collect, grab and go and more kind of rapid shopping versus just having kind of an interspersed parking availability.”
GWLRA is a leading North American real estate advisor, providing asset management, property management, development and customized real estate advisory services to pension funds and institutional clients. GWLRA oversees a diverse portfolio of office, industrial, retail, residential and mixed-use assets as well as a pipeline of new development projects.