Calgary’s downtown retail sector has been hit with a double whammy over the past year or so due to the COVID-19 pandemic and the continued challenges brought on by a low oil price environment.
With downtown office vacancy rates still hovering in the historic 30 per cent level, the economic recovery for the downtown retail industry will take some time.
Recently, Calgary’s City Council recognized the ongoing challenges of the downtown and committed millions of dollars in an initiative to revitalize the core.
Michael Kehoe, broker/owner with Fairfield Commercial Real Estate in Calgary, said recovery is achievable but it’s going to take a significant commitment from the City of Calgary to make it a business-friendly environment and market it like a shopping centre is marketed.
“Downtown Calgary is an employment centre but as well it’s a shopping centre. There’s a tremendous amount of leasable area in the downtown core that’s dedicated to retail. Not only in the main shopping centre The CORE and Stephen Avenue Place but on the Plus 15 levels and at street level throughout the core,” said Kehoe.
“It needs to be reconceived and many retail spaces will be repurposed maybe into alternate uses. The City needs to encourage citizens and shoppers to come downtown with incentives like relaxed parking fees, special events, other attractions. That’s what the post-pandemic downtown core is going to require. A full-scale commitment from the City of Calgary.”
With minimal foot traffic and occupancy in several office buildings, retail in those towers have suffered a devastating blow in the past year or so. Commercial tenants on main and second levels are obligated to stay open through their lease agreements with little or no sales. It’s a very difficult situation for these entrepreneurs.
“The downtown is the economic engine of the city. Buildings like the Bow, their recovery will be an important part of how the downtown reinvents itself. It’s going to be dependent on workers returning to a reinvented work environment and the commercial viability of stores and restaurants is driven by foot traffic and these building populations,” said Kehoe.
“Until that recovers, it’s going to be very difficult downtown.” Ron Odagaki, Senior Sales Associate, Retail, with JLL in Calgary, said the downtown core’s retail scene has been hit the hardest with the work-from-home orders experienced over the past 12 months or so.
“That’s really had a very negative impact on the retail in the core,” he said.
“With what we’re seeing with some of the office buildings perhaps transitioning to other types of uses, maybe there’s a different lens to which people are viewing what can be done to revitalize the downtown core.”
While business closures, particularly in retail and restaurants, have taken place, it has not been at the level many anticipated would happen due to the persistent economic challenges.
Odagaki speculated that government support programs have helped keep businesses open. Also retailers in the city have been able to find other means of getting products into the hands of consumers through revamping a website, delivery to homes, telephone orders, curbside pickup, pick up in store.
“A variety of multi-channel methods of product delivery and service delivery,” he said. “There’s still a number of construction projects that are ongoing in spite of the pandemic. A lot of these relate to the fact they’ve been years in planning, years in the making. Certainly notwithstanding the timing these projects are moving forward and they are creating some leasing activity.
“There’s a relative tightness of retail in this market in general. So for the long term I do still expect that as the city grows the retail will grow with that.”
A market report by JLL said the Calgary retail outlook remains solid in the long haul despite a surge of new supply in 2020.
“More than one million square feet of retail entered the market last year, the highest since 2017. The market should stabilize over time as lower construction levels provide a breathing room for the absorption of excess supply,” said the report.
“Leasing activity in 2020 was down about 40 per cent compared with 2019. However, the market enjoyed a refreshing boost in activity in Q1 2021, one of the best Q1 marks for Calgary over the past few years.
“In 2020 asking rents for available space fluctuated, but the 2021 trend has been downward. In turn, effective rents for occupied space plummeted by 17 per cent ‒ the worst mark across markets.”
It said retailers have taken advantage of vacating class-A spaces. Several high-profile suburban locations have been subject to multiple offer scenarios.
“Calgary’s retail sales decreased by four per cent in 2020 ‒ the worst performance in a major market after Toronto and Montreal,” said JLL. “Pedestrian traffic along downtown retail corridors was down significantly compared with 2019, as the commercial district lacked office workers.”
Total availability in the market has risen from 3.1 per cent in 2018 to 4.7 per cent in 2020.
Scheduled to open this fall, Royop’s Township continues to lease up and recently surpassed 85 per cent pre-lease. The total project encompasses 1,500,000 square feet and includes retail, office, residential and hotel space. Sobeys, PetSmart, buybuy Baby, and Winners are some of the notable tenants, said JLL.
The next construction phase for The Shops at Buffalo Run is scheduled to begin this spring/summer with tenant openings commencing in the fall of 2022. Anchor Costco opened its doors last summer. The Calgary Farmers’ Market started to build a second location in the northwest community of Greenwich. The new store will encompass 50,000 square feet and is due to open in 2022.