The Vancouver retail market outlook overall remains positive and one of the tightest markets in the country continues to hold up well during COVID due to limited supply and relatively lighter health and safety restrictions.
A report by commercial real estate firm JLL found that total availability of retail space fell from 3.7 per cent in 2017 to 2.8 per cent in 2020.
“As Vancouver stays competitive, tenants have become more bullish on the market, poised for expansion. At the same time, current tenants in enclosed malls have actively pursued streetfront exposure, trying to exit the mall. The amount of leased square footage in 2020 remained the same as 2019, demonstrating market resilience,” said the report.
“Despite deceleration in Q2, asking rents continued their upward trajectory with a five per cent increase in Q4 year-over-year. The growing availability of premium space on Robson, Granville, and West 4th is contributing to drive up average asking rents for the market. Effective rents have partially recovered after a Q2 correction, resulting in an aggregate drop of only two per cent in Q4. Restricted by lack of available sites, construction slowed even further to one of the lowest levels in the past five years. Perhaps the only sign that Vancouver isn’t unscathed by COVID is the percentage of available space, which advanced one per cent during 2020. The trend to move in (as opposed to moving out) remains predominant but not as strong as in 2019, contributing to loosen the market.”
JLL said 2021 expectations for Vancouver are high as the market remains heated. In Q1 2021, the amount of leased space was more than 10 per cent higher than Q1 2020. Also, limited supply tightened the market and available space dropped. Vancouver’s retail sales remained flat in 2020 ‒ the best performance across major markets while 2020 daily average pedestrian traffic along downtown retail corridors was cut almost by half compared with 2019. Robson and Alberni Streets lacked tourists and the commercial district lacked office workers. Consequently, the number of lease signs on Robson and Granville has risen, explained the report.
Martin Moriarty, Senior Vice President, Investments & Leasing, for Marcus & Millichap, said Vancouver is such a strange market and many retail experts were kind of amazed at the activity over the past 18 months – and it shows little signs of slowing up.
“We are expecting an acceleration of deals in the next while here,” he said.
“I was pretty impressed actually overall. In the world context in the past 15-18 months, I was personally surprised with the resilience of the Vancouver marketplace – pleasantly surprised. When I look back, and it was a very strange time, we actually, like the rest of the world, had challenges. The overall story and theme is pretty challenging but I don’t think we can complain too much. There was pain here like everywhere else but when I think back we were able to complete quite a few deals across a number of industry lines.
“We were able to do flagship deals on Robson Street – Peloton, Footlocker, COS and others. Those are traditional retail deals. They’re challenging to do at the best of times. But doing them during COVID shows the confidence in the marketplace. On top of that, we added a significant number of international tenancies in terms of restaurant and dining.”
Moriarty said the retail industry was very fortunate in the fact it never had a hard lockdown during the pandemic.
“The market itself in the past two to three months has really been heating up. We’ve seen a surging demand in leasing activity and in people starting to believe that the world’s getting back to some form of normal,” he said, adding the biggest challenge right now is getting big flagship deals done without having boots on the ground. That will change as the leasing activity transitions from virtual meetings to in-person tours again.
Moriarty said the expected mass exodus of retail due to the pandemic never materialized in Vancouver or elsewhere. Certainly there were some business closures but not to the extent that some had predicted.
“It doesn’t feel like there’s a huge panic in Canada. There isn’t a huge excess of retail space here relative to populations and relative to overall landscape of real estate where some major US cities are over-retailed. Certainly in Vancouver we’re not. We are actually starting to look at booking up tours again with international groups to take a look. It’s probably been about 15 months that we’ve been able to do that.”
“The downtown has been disproportionately impacted of course by the pandemic with the loss of tourism, the loss of the commercial office sector – I think it’s running at about 10 to 25 per cent on any given day – and then of course the things that would normally drive people downtown like events and sporting events, arts and culture. All that was stopped,” said Smith.
“Typically Robson Street has become more of a tourist destination and yes locals still come but it wasn’t necessarily the majority of who would be walking up and down the street. So it was hard and looking at what businesses were impacted more things like clothing retailers and restaurants definitely felt the impact quite heavily.
“It’s been hard. We’ve seen a drop in our pedestrian counts. Right at the beginning obviously significantly we were in the 85 per cent range. We’ve slowly worked our way back. So we’re about 60 per cent of what we would normally be. It’s been a positive thing in the sense we are seeing our locals support the area which has been good. We’ve seen a few closures not surprisingly but we’ve also seen new businesses open up too. There has been leasing activity. There’s a lot of interest in the downtown and on Robson as well. That’s been positive.”
Smith said there have been about 10-12 COVID closures and “we’re not out of the woods yet.” There are still some potential closures to come. But the number of closures is nowhere near what many had anticipated.
“There was a lot of doom and gloom out there, especially in the beginning. There’s always been this sort of underlining discussion about this retail apocalypse going on for a few years. It’s an evolution. Retail has been going through change always and I think COVID accelerated some of that just in terms of the online shopping and those kinds of trends and people becoming more comfortable on that platform when they didn’t have another option,” said Smith.
“It’s definitely moved online shopping a bit further ahead than it probably would have but there’s still a need for bricks and mortar. Even though we did see restaurants close Vancouver wide, city wide, they were also one of the businesses that saw the highest number of openings like new openings. I would say that things are not as bad as predicted but I would also say we were in a slightly better position than some other cities across Canada or even North America. We didn’t see as strict closures and shutdowns. Our government tried to keep our businesses open as much as possible and I think that helped as well.”