Canadian shopping centres have among the highest occupancy rates in the world, says the Vice President of Retail Leasing for Cadillac Fairview.
In a recent webinar with the Consumer Real Estate Canada group, Darryl Schmidt said in the UK vacancy levels are sitting around 30 per cent in some very large well-established shopping centres.
“Likewise in the US, so where our portfolio and the Canadian average is probably sitting somewhere between 85 and 92 per cent occupied. We’re in really good place. But excess vacancy and large box vacancy, there’s a number of huge department store boxes that are vacant in the US and Europe, is forcing those landlords to get super creative,” said Schmidt.
“There’s a big push in Europe and the US into the leisure category. I saw some concepts where you had indoor go kart tracks, full indoor go kart tracks, EV, electric so they’re super high speed, within department store space and then all the ancillary leisure uses that would go along with that in terms of indoor golf . . . There seems to be a huge movement afoot to try and fill the void of these large boxes with leisure.
“I don’t know if that’s going to be a long-term solution. It’s a great short-term traffic driver.”
Schmidt said he was pleasantly surprised at how robust retail sales in Canada were in the third and fourth quarters of 2021 once the industry emerged from a lot of the lockdowns earlier in the year.
“We’re getting good initial feedback from a number of our clients in terms of what holiday sales looked like. I would say that in almost 50 per cent of our portfolio amongst our retailers we saw a return to 2019 sales levels or exceeded 2019 sales levels, especially Q4 and a portion of Q3. So that’s a great news story,” said Schmidt.
“It’s not all great news. We’ve still got some issues in our urban assets because of the lack of return to office in the major markets. I’d say right now given what we’ve seen in the last two years it’s a positive news story certainly for the last six months.”
Schmidt said luxury retail has performed exceedingly well through COVID.
“When the going gets tough, the tough go shopping. We take a look at Holt Renfrew in Vancouver, they’re exceeding 2019 sales. They didn’t miss a beat. Same with Louis Vuitton. Tiffany. Any of the luxury brands performed exceptionally well and we’re seeing the byproduct of that now. We’ve got a number of luxury brands in market that are looking to expand. Some of it is re-trenching out of the department stores and looking for freestanding locations. Others it’s just expanding their footprints on the global standpoint and doing new freestanding locations,” he said.
But Schmidt said there remains some real systemic weakness in footfall in the major urban markets. The Cadillac Fairview portfolio includes CF Pacific Centre in downtown Vancouver, CF Rideau Centre in downtown Ottawa and the downtown Toronto CF Eaton Centre.
“In those markets, we’re only seeing a maximum return to office occupancy in our towers of about 20 per cent and that’s having negative impacts on footfall. In best case scenarios on the weekend we’re seeing footfall return to 50 per cent of pre-pandemic levels. Mid-week it’s probably weaker. It’s somewhere between 35 and 40 per cent. And that’s a challenge. It’s a huge challenge for our food operators in that diminished footfall. They live and die on the number of people coming through the shopping centres,” said Schmidt.
“That’s still an issue for us but the good news side of that is we’ve seen disproportionately high sales for the footfall. In a number of retailers in those urban assets we’ve seen retail sales return to 80-85 per cent of pre-pandemic levels with that light of traffic.
“Conversely in the suburban markets, our fortress type suburban shopping centres have gone back up to 80-85 per cent footfall pre-pandemic. CF Chinook Centre being an example. CF Carrefour Laval being a good example. And we’ve seen sales to my earlier point exceed 2019 sales basically since August. So, higher conversion rate for the footfall that we’re seeing. Very intentional shopping. A sign of the times. Nobody’s going out to the shopping centre unless they’re intending to spend money. That’s kind of the silver lining.”
Schmidt said there is no question there is a trend toward having auto dealerships in malls these days. He said Cadillac Fairview likes the trend because it’s a category that appeals to a male shopper. Schmidt said CF is putting the finishing touches on a Mazda deal in CF Richmond Centre which is backed by Mazda in Japan. It has also replaced one of its largest boxes in CF Markville with a Porsche dealership.
Schmidt said another retail category trend athleisure is “red, red hot.”
“We’ve done five deals with JD Sports out of the UK and we’ve opened the first one in CF Fairview Mall in Toronto. They’re performing exceptionally well. We’re going to have a number of the openings through the spring of this year,” he explained.
“We’ve done a number of deals with Decathlon out of Europe, a large sporting goods chain. And they’re going to be quite aggressive. But also we’ve signed up new business with NIKE, Athleta. We’ve got other yoga players from Australia, US and Central Europe looking.
“And we’ve got other footwear players looking. So athleisure is far and away the hottest category and it’s good. For the first time in probably 25 years in our corporate history we’ve got some larger blocks of real estate that we can accommodate these players.”
Schmidt said Peloton’s space at CF Chinook Centre will be tripling its footprint at the mall, which is another example of how the fitness and health category will grow in the future and more of a blurring of fashion and fitness.
Schmidt said Cadillac Fairview is looking to diversify both its asset class and geographically by investing in Central Europe, the UK, Latin America and Asia.
“We’re unweighting of retail and office right now, trying to weight more heavily into residential, mixed-use and logistics,” he said.
There’s a big push to differentiate the company’s existing portfolio and assets from their competitors and much of that will be through mixed-use developments on a lot of existing shopping centre sites,” said Schmidt.
“A good example of that is what we’re doing in Richmond with CF Richmond Centre where we’ve got the entitlements in place and we’re under construction on 12 towers that’s going to represent 2,000 condominium units that will be developed out over the next seven years. And we’ve already pre-sold 1,000 units in the last 14 months in that market.”
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