Overall leasing activity in the Calgary retail market has reached its pre-pandemic level.
A report by commercial real estate firm JLL said the strong leasing activity that started in 2021 has continued into 2022 and local retailers remain optimistic about increased future sales fuelled by pent-up demand.
“Asking rents are trending upwards. Q1 2022 rents have seen a 15 per cent increase from Q1 2020. Effective rents are rising as well, but they remain down from pre-pandemic levels. Notably, several fast-food operators are bidding on similar spaces driving rates up,” said the report.
“There has been a strong net positive absorption this year in tandem with a surge in deliveries. While new construction is adding retail inventory to the market, a lot of these spaces have already been absorbed through pre- leasing. Percentage of available space remains flat even with the positive net absorption. General retail has contributed most to this positive absorption.
“Tenants are searching through existing inventory and future development opportunities to expand their businesses, particularly in the suburbs. With a tighter market, rental rates are expected to continue their upward trajectory in the short term.”
Ron Odagaki, Senior Sales Associate, Retail with JLL, described the market in Calgary as having sustained demand.
“2021 was the turning point. There’s still a positive trend from the beginning of 2022. There’s still pent-up demand I believe from retailers and from consumers,” he said.
“I think that continues from a leasing perspective. You’re still seeing an upward pressure on rental rates and a downward pressure on vacancy.”
Total inventory of retail space in the Calgary market is 74.9 million square feet with 1.6 million square feet under construction. Total availability is about 4.2 per cent, which is up from 3.1 per cent in 2019 after peaking at 4.6 per cent in 2020.
The JLL report said the market is seeing retailer leasing demand that is higher in the suburbs but lower downtown as foot traffic in the downtown core hasn’t yet returned to pre-pandemic norms. With employees starting to return to office environments, we should see more sustained traffic patterns in the downtown core and consequently higher demand, it said.
“We’re not out of the woods yet. We’re not at the 2019 traffic yet. Have we reached an equilibrium on what the downtown looks like today as for hybrid working models, full-time back to the office?,” said Odagaki. “And then the question about the current vacancy. The vacancy is improving but where does that equilibrium get to? I don’t think we’re there yet.
“There is this optimism but there’s still this wait and see from a number of retailers.”
Of the major retail corridors, the fastest recovery is along 17th Avenue and on 4th Street. Traffic is returning to these nodes, and the retail vacancy rate has plateaued but isn’t yet starting to decline, said the JLL report, adding that Calgary has regained foot traffic better than many other cities including Ottawa, Montreal, and Toronto.
Vacancy rates have continued to be high in areas in the downtown core. Beltline, Central Core South, Central Court North, and East Village have vacancy rates of 5.8 per cent, 6.1 per cent, 6.7 per cent, and 11.5 per cent, respectively. Outside the downtown core, vacancy has been under four per cent, it said.
“With its anticipated population growth, Calgary stands as a significant market for retail expansion. Relaxation of physical store restrictions, higher personal savings levels, and increased consumer confidence have pushed demand for spending,” said JLL. “We’ve seen a spending shift from categories such as home furnishing and home improvement to travel and entertainment. As festivals, conferences, and cultural events resume, tourism spending should also return and contribute to Calgary’s retail sales.”
Odagaki said the vacancy rate, particularly in the downtown, did not reach the level many people might have expected considering the challenging economic times and public health restrictions of the past two years.
He said a combination of landlords assisting retailers as well as government support was helpful in keeping the retail vacancy rate at a lower level.
“Through the times that retailers had to be closed, a number of categories found other alternatives to get their products to market be it online, curbside, when they were allowed to open,” added Odagaki. “A lot of different ways so retailers were not completely shut down and still able to provide goods or services.
“That has played a factor in why the vacancy hasn’t really fluctuated as much as maybe some had expected. And as we come back to recovery, the retailers are now finding it as getting back to normal in terms of selling practices again.”