Despite experiencing restrictive measures in major markets, Canada maintained strong retail sales as core retail sales in 2021 are projected to be up 13 per cent compared with 2019, and retail sales should continue to grow in 2022, says a report by commercial real estate firm JLL.
The ‘Canada Real Estate Outlook’ research report says leasing activity in the sector is expected to increase with the arrival of a more stable environment, likely in the second quarter of this year.
“In Q1, rents should see their recovery trajectory slow, but they could quickly resume in the event of a short Omicron wave. While rates across Canada increased moderately in 2021, slowly approaching those of 2019, they could surpass pre-pandemic levels by the end of the year. Vacancy and availability rates have trended down. This will become more visible in 2022 and 2023 when deals are finalized and new stores open,” says the report.
Tim Sanderson, Executive Vice-President, Retail, for JLL, said the outlook heading into the second quarter of this year is one of optimism.
“Retail leasing activity and interest in the marketplace seems to have picked up, certainly in the major markets of Canada,” he said. “I think it’s a couple of things. One, overall spending increased in late January and in early February as the restrictions were eased in the major markets. Restaurant sales jumped in Ontario and Quebec with the reopening of indoor dining.
“Travel expenses have rebounded after plunging during the holidays but they’re still at only about 40 per cent of pre-COVID levels in Canada. In the US, they’re back up to 80 per cent of pre-COVID travel numbers.
“And all that pent-up demand coupled with the amount of savings Canadians have in their bank accounts is saying to retailers hey it’s time to wake up and get going and open some stores again.”
Sanderson said real estate markets don’t like uncertainty and the retail sector has had way too much of it for way too long.
He cited a previous JLL survey showing that 72 per cent of shoppers in 2021 said they would go to a physical store to buy or pick up goods compared to 67 per cent in 2019.
But the JLL report also outlines some challenges still facing the retail sector. Labour and supply chains have been bottlenecks to meeting increased consumer demand. The ongoing pandemic, especially during surges, prolonged supply-chain disruptions, leading to slow production and logistics delays. Job vacancies are expected to remain high after vacancy rates soared in both the accommodation & food services and the arts, entertainment & recreation sectors in 2021, says JLL.
“Labour is still a problem – especially in food services because so many people have left that industry that getting staff back is a major problem. I can’t understand where they’ve all gone or what alternative employment they’ve been able to come up with during COVID but that seems to be a real problem,” said Sanderson.
“And supply chain is starting to ease a little bit but it’s still a concern now that we’ve seen this truckers’ thing (protest) hopefully come to an end, the biggest problem there was the food service, fresh produce for example coming into the country at those major border crossings. The sense is that supply chain is going to get resolved and going to get back to normal later this year if not early next.”
The JLL report says restaurants should see a strengthening in business in the spring as the weather warms and quick service restaurants will continue to outperform other food services and drinking places. Fast food restaurants quickly rebounded from COVID-19 and have consistently seen increased sales from 2019.
“(Food services) scratched the bottom of the barrel and that entire food services industry was on its knees unfortunately. God forbid, we would have had another lockdown. It would have just been that much worse. Clearly it’s the independents which fuel a lot of the food service that are the hardest hit. Big companies can survive, they can shed costs, they can close stores, they can do a lot of other things and stay in business,” said Sanderson.
“But it’s been toughest on those people for sure. Sadly.”
Sanderson said Canadian retail sales in January increased 4.3 per cent largely driven by in-store spending which was up 14.8 per cent. The apparel sector has also experienced growth for the last 11 consecutive months as consumers refresh their wardrobes and dress to impress for gatherings and as they go back to work.
“Those are both good signs because those were categories that were hard hit for sure,” he said.