Retail was one of the commercial real estate sectors that suffered the most during the COVID-19 pandemic but has exhibited signs of sheer resilience and recovery, says a report by commercial real estate firm Colliers.
“With the progression of vaccine rollouts and ease of public health restrictions, many indoor spaces reopened, and there has been a stellar increase in foot traffic. People are swiftly moving back to their normal commuting patterns, and the caution from travel is subsiding. Consumers continue to spend on goods, food, entertainment, and recreation. A sentiment of hope and confidence is returning among consumers, retailers, retail landlords, and investors,” says the 2022 Retail Outlook.
Jane Domenico, SVP & National Lead, Retail Services with Colliers, said retailers are entrepreneurial at heart.
“They saw change coming and they shifted and changed their operating business. When we couldn’t get masks, we saw a lot of people change to producing masks and selling masks. Things of that nature are part and parcel of being a strong retailer,” said Domenico.
“And retail has been evolving. The change that was brought on by COVID is an acceleration of those changes. So once retailers were thinking about their online presence and their click and collect programs, what it did was accelerate those changes and accelerate those plans.
“When people think retail it’s all lumped into one big bucket. But I would say there are four types of retail. There’s the enclosed mall fashion, there’s the necessities retail and then there’s large format which is a mixture of the fashion tenancies and the necessity tenancies together. And then there’s podium or street level retail. Each of them had opportunities and things about their nature that allowed them to pivot and change to meet the COVID economy.”
Domenico said the lack of bankruptcies experienced in the past two years is the story of the retailers as they shifted throughout the pandemic and came out in a new way.
The Colliers retail report said there has been a strong economic recovery with robust growth in the labour market, a boost in home-grown and foreign consumer demand and a greater adaptation of ecommerce. An increase in spending, foot traffic and consumer confidence paved the way for a potential reset. Even though retail vacancy rates are expected to continue to decline, and rental rates are expected to stabilize across the country in 2022, there are concerns to be aware of, it said.
Those concerns include: Omicron has slowed down activity through the start of 2022, though the severity of its forces will be lesser compared to previous waves; with supply chains bottlenecking again in the first quarter of 2022, Canadian consumers should expect delayed shipments, higher prices, and less stock in their local stores and online; and labour shortages continue to pose a dominant issue for retailers and restaurants.
Domenico said supply chain challenges in the past two years have changed both the retailer and the consumer.
“Smart consumers went to stores and bought the products that they wanted for the holiday season of 2022 or they chose to do a click and collect program versus delivery,” she said. “I think click and collect will remain to be a very popular and more affordable option for both the retailer and the consumer . . . This is the first time that the just-in-time model has really shown its problems when there’s a disruption . . . Supply chain is probably one of the biggest factors that our retailers are going to be having to manage and work around.
“It’s an opportunity for Canadian manufacturers to hopefully fill the need for our retailers.”
Domenico said retailers will be looking to ensure that their employees are being treated properly to keep them there. But there are so many jobs available now and it’s really an employee marketplace.
“So smart retailers will ensure that they’re offering their employees a safe and secure workplace and the shopping environment for their consumers. They will be proactive ensuring that their hourly rates are market based. All these things still cost money and put further pressure on the retailer but if you don’t have good people in your stores or in your delivery channels and in your distribution network, you can’t get the product out and therefore the consumer will have dissatisfaction,” she said.
“So concentrating on those items and trying to retain employees is going to be key.”
Domenico said that for the first time this summer the country will see tourism returning. That will potentially improve retail sales across the board.
The Colliers report said international shipping costs had already been rising for several years before the onset of the COVID-19 pandemic, which only exacerbated the situation, exponentially increasing transportation expenses.
“Supply chains were severely affected, especially at the height of the pandemic in 2020, and the trend will continue well into 2022. The following are the main factors that are currently affecting international shipping rates. There is a global shipping container shortage, few alternatives to ocean freight, especially when it comes to transporting low-cost products, and the demand for international shipping which skyrocketed in 2020, hasn’t slowed down. These factors have resulted in higher prices for consumers’ goods and services,” it said.
“Canadian shoppers have more choices on where to buy products than ever before. They can go to their local mall, order online for delivery, or even order online and pick up in-store. Shoppers also have more options for returning their purchases – they can mail them back or return them to a nearby store. Since the beginning of the COVID-19 pandemic, most Canadians have increased their online shopping, and according to Canada Post, parcel deliveries rose by more than 24 per cent in the first eight months of 2020. Delivery of all those online purchases means more courier vans are emitting more greenhouse gases contributing to climate change. A study by Deloitte found that the environmental impact of shopping in-person at a traditional brick- and-mortar mall can be up to 60 per cent more environmentally sustainable than online shopping.
“The study found that several factors, including increased returns (40 per cent) of online purchases versus seven per cent in the case of brick-and-mortar) and additional packaging contributed to ecommerce’s negative environmental impact. At the same time, mall shoppers buy, on average, 3.5 products per trip and visit other places on their way to the mall, which lowers the emissions related explicitly to their mall visit because their outing was divided between multiple stops.”
Colliers said Canada’s retail vacancy rate declined 100 basis points from year-end 2020 down to 7.7 per cent in Q4 2021. With the lifting of many more public health restrictions expected in the first half of 2022, retail fundamentals will continue to improve across the country as more consumers return to shopping and dining in restaurants, it said.
“Many big and small retailers have closed their stores across Canada through the past couple of years. Unfortunately, we keep hearing about more stores closing permanently or filing for bankruptcy because of the pandemic. The upside is that many brands have expanded in Canada in the past year, and many more have major expansion plans or plan to enter the Canadian market for the first time in 2022. As a result, we expect vacancy rates to continue to decline in 2022,” added Colliers.
“Retail rents across provinces depict a fast rebound in 2021 after a significant dip in 2020. The government set up multiple platforms to aid businesses, including rent relief, wage support and loan programs. Yet, many small businesses and restaurants continued to experience closures due to the accumulation of debt and the inability to create an online presence. Rents should continue to stabilize in 2022 as they continue to move closer to pre-pandemic rates.”
