The Toronto retail leasing market will see improved activity in 2021 but should remain below 2019 levels despite its recent rebound. A series of lockdowns has impaired the ability of many retailers to make plans, so leasing is still catching up, says a new report by commercial real estate company JLL.
Despite a severe third wave, overall retail leasing activity rose by 21 per cent in the first half of 2021 compared with 2020, but remained 28 per cent down compared with 2019, according to the Retail Outlook for the Fall 2021 report.
“Retailers have certainly looked at foot traffic to lease spaces. The focus remains outside the CBDs, as many office workers have stayed beyond the downtown areas and worked from home. Scarborough has seen strong space absorption during the pandemic,” it said.
“Available space decreased in 2021 as developers readjusted to lower demand and significantly reduced new supply. The trend to move in remained stronger than the trend to move out, although not at the strength of previous years. In this context, neighbourhood centres, anchored by essential shops a few steps from shoppers’ homes, have seen increased interest across the GTA.
“In fact, neighbourhood centres, power centres, and general retail were the biggest contributors to the decrease in availability. In contrast, only malls experienced a significant increase in availability, offsetting some of the overall decrease.”
Tim Sanderson, Executive Vice President, National Retail Lead for JLL, said the Toronto market is starting to come back.
“If we haven’t hit the bottom of the market yet, it’s imminent and things are beginning to pick up. There is some more vibrancy to the marketplace on the both the landlord and the tenant side. People need to remember that Toronto was the most locked down city in North America in terms of days of closures,” said Sanderson. “We were in a very dark spot. Vancouver wasn’t locked down to the degree Toronto was. Calgary wasn’t. Montreal wasn’t.
“So the dip, the bottom of the trough, was much deeper here. But we’re definitely seeing signs of vibrancy in the marketplace. We’re seeing retailers starting to talk about looking at space. And that’s good. That’s very good for the marketplace.”
Sanderson said a little bit more certainty is turning things around in the retail real estate market.
The JLL report said that while net effective rents for occupied space decreased by 14 per cent in 2020, they have moderately rebounded in 2021, demonstrating that the trend for base-rent concessions and adoption of percent sales agreements has receded and rent collections have improved. Retail sales in 2021 are down five per cent compared with 2019, although they increased by eight per cent compared with 2020.
“The ramp-up to the recovery of food services will be also slow as Ontario’s 2021 sales are down 32 per cent from pre- pandemic levels. After reporting full patios and reaching maximum capacity during the summer, full-service restaurants should see a weakening in business as the fourth wave moves through and the weather cools. QSRs will continue to perform better, although sales in the province haven’t recovered completely,” it said.
Business owners in downtown Toronto continue to deal with reduced foot traffic in areas, like the PATH, that were once bustling with office workers. More than half-a-million workers used to visit the downtown area every day, added JLL.
“The financial cores of the major cities in Canada have been hard hit. Keep in mind that the amount of office space in downtown Toronto compared to Calgary or Vancouver is gargantuan and it fuels a whole lot of other activity in the marketplace, restaurants, retail, etc., “ said Sanderson.
“What I do find interesting is the areas, the neighbourhoods, around the core if you look at downtown Toronto – King West, King East, the Distillery, Yorkville – these are vibrant. Things are going on.
“One thing worth noting. Many of the trends that take place in the United States often end up coming to Canada. I was on a call with my colleagues in New York (recently) and they’ve definitely seen an uptick since Labour Day of people going into Manhattan. Traffic is up. Subway traffic is up. Train traffic is up. So people are starting to come back to the offices in Manhattan. If you argue that Toronto is the New York of Canada, does that mean we’re going to see a similar trend here? And if so when? I think one of the biggest challenges in this market, in Toronto in particular, is still what seems to be people’s reluctance to get on the Go Train and the Subway – whether you’re worried about the person next to you coughing on you or whether you’re getting two hours back in your day when you’re not on sitting on the Go Train by working at home.”