A commercial real estate report by CBRE says the retail market continues to evolve and adapt to the changing landscape, and innovation and a focus on experience will see the sector reinvigorated this year.
The Canada Real Estate Outlook said consumer confidence remains positive and spending is forecast to stabilize in 2022.
“I think going into the spring and summer it’s going to be super positive. I think it’s going to feel like the Roaring 20s this summer in retail,” said Arlin Markowitz, Executive Vice President at CBRE. “People are going to be out and about. There’s still pent-up demand. I still think there’s some revenge shopping to be had. We’ve talked about that a lot over the past couple of years and I think the US has already seen it and benefited from it and we haven’t yet because of the continuous lockdowns, especially in Ontario.
“When this summer hits, there’s going to be a major explosion in spending, that people still haven’t been able to do comfortably. When people get the chance to enjoy a summer day with no lockdowns, potentially no more masking mandates, they’re going to be out and about feeling pretty damn good and they’re going to be out spending.”
Markowitz said what he’s seeing more and more in the industry is an evolving tenant mix in retail properties.
“The increased amount of food and beverage and experiential retail in both our major enclosed centres and our high streets is something that is going to keep going in the long-term and I think it’s a great change in retail,” he said.
“The mixture of restaurants and bars is creating a much more lively atmosphere out there and it’s really benefiting a lot.”
Markowitz said these other uses are helping to fill up empty spaces and will keep vacancies down as landlords are more open to a wider array of uses.
The CBRE report said supply chain disruption will continue to produce inflationary pressures for both retailers and consumers. Strong economic growth, labour shortages and constrained supply chains will see the price of goods and services increase in the year ahead.
“New food and beverage concepts will be important in attracting customers back to shopping districts, proving integral to the tenant mix and vibrancy of sites. We will also see restaurants dipping their toes into direct-to-consumer offerings that bring products and experiences directly to home kitchens across Canada,” said the report.
“Consumers will increasingly support brands that align with values aimed at sustainability in the year ahead. As retailers make bolder commitments to reducing their carbon footprint, this will impact store concept design and lead to the inclusion of green clauses in leases.”
The report said recovery in the retail sector is well underway. Retail foot traffic and sales productivity numbers rebounded to normal levels of activity as consumers eagerly made up for lost time in 2021. Existing brick-and-mortar stores are becoming more efficient too, as stores have had to adapt to an increasingly online world. Since 2010, store-based retail sales numbers have been on the rise, growing nearly two times as fast as physical inventory indicating that retailers are using space more efficiently than before, it said.
“Retailers and consumers alike have learned from each wave of COVID, leading the industry out of the unknown and more equipped to weather whatever comes next. Rent delinquencies are also down to just 1% and 2%, respectively, for open air centres and enclosed malls as per Realpac’s Q4 2021 survey, with few retailers remaining on rent deferral programs going into the new year. Consumer confidence remains positive, and spending is forecast to stabilize in 2022 as a build-up of personal savings during the pandemic is released,” said the CBRE report.
Markowitz said shopping centres will remain strong and they have evolved to become more community centres.
“There’s things that you’re going to need to get there and the mall landlords have been smart enough to put those things in their centres to give people more reasons to go there. I think shopping malls are going to become a lot more convenience space. You might see some new things popping up like maybe more medical services in malls,” he said.
“You might see more medical, more grocery, more fitness, service. Massage therapy. Nail salons. Just different things. Even, I heard about a mall putting a library in. They want people coming there. It’s all about footfall and from a consumer standpoint it’s all about efficiency and convenience. Malls will be doing well and if they add more of that stuff and more food and beverage, customers are just going to have more and more reasons to go there.”
The CBRE report said retailers are consolidating their locations, most notably in the fashion segment. Retailers continue to consolidate store networks as leases expire, however their overall footprint is likely to remain stable as they will still expand stores in profitable locations.
“On the other side of the coin, traditional online-only retailers have been gravitating towards having a physical presence to differentiate themselves. These locations are proving to be more successful than online since consumers have the opportunity to experience the brand,” said the report.
“Cannabis saw a rise in leasing activity during the depths of COVID as more landlords took on these tenancies in order to fill vacant space. The market has since become oversaturated in some markets, primarily on urban streetfronts. It is likely that we will see this market thin out through mergers and acquisitions, reducing the number of competitors in the year ahead.”
The report also said that social and environmentally conscious consumers will increasingly look to support brands that align with values aimed at sustainability in the year ahead. The 2021 EY Future Consumer Index Survey found that sustainability is quickly climbing to the top of consumer priorities, with 61 per cent of shoppers planning to pay more attention to the environmental impact of what they consume.
“Companies have announced ambitious targets in recent years aimed at a more sustainable future. Global furniture supplier IKEA has a goal of using 100% renewable energy by 2030. The retailer also offers electronic vehicle charging at most of their stores and, among other practices like low-waste sorting stations in food courts, is something many retail landlords have been integrating into their sites,” said the report.
“As retailers make bolder commitments to reducing their carbon footprint, this will impact store concept design and lead to the inclusion of green clauses in leases, which is already starting to be seen most predominantly through requesting of sustainable waste services.”