The retail outlook for Edmonton is slowly improving as the sector comes out of a challenging time during the pandemic.
A report by commercial real estate firm JLL said the retail market in the Alberta city has seen steady improvements in leasing activity through the start of 2022, despite not yet reaching pre-COVID levels.
“The pandemic has created pent-up demand for retailers and consumers, driving a surge in retail sales,” said the report. “Asking retail rents have remained relatively stable, with a slight dip to begin the year. The trend in rents is still upwards. As vacancy continues to drop with the help of the recovery, landlords are expected to raise rental rates.
“The growing net absorption and declining vacancy have been strong signs that the market is tightening. Most of the positive net absorption is attributable to general retail, malls, and neighbourhood centres. Many of the major corridors have been recovering and are now at healthy vacancy levels. Whyte Avenue is the slowest to recover, and currently has more vacancy than it’s had in a long time.”
The availability rate in Edmonton has increased from 4.3 per cent in 2019 to 5.1 per cent today. It had peaked to 5.8 per cent in 2021.
“There’s lots going on. Everybody you speak to has a lot of transactions in the queue, a lot of people looking, which is all really positive. I would say it’s the busiest we’ve been since we lifted most of our restrictions,” he said. “We have a lot of variety of product that we work on here. There’s significant interest. Paper moving back and forth, which is good.
“People are trying to do deals. Franchise groups are back out sourcing sites because they’ve got franchisees in the queue and they’re looking for spaces which is usually a pretty good indication that the market is moving in the right direction. That hasn’t happened very much over the last two and a half years. It’s been fairly quiet on that front. So that’s a good thing.”
Raimundo said the flight to grocery-anchored, daily needs sites continues. They remain the strongest sites in the market.
“You’re starting to see good commuter sites now come back. Those two to three acre C-store gas bar sites. The interest has picked back up in those,” he said. “New growth areas are still big here and we’re doing a couple of projects in a couple of areas.”
The JLL report said the food and beverage industry in Edmonton has suffered perhaps more than others. More specifically, full-service restaurants that occupied spaces between 5,000-7,000 square feet are becoming vacant as fewer shoppers dine in. Restaurant owners are finding spaces between 3,500-4,000 square feet as optimal for their businesses and ever-changing consumer behaviour, it said.
“With a dramatic increase in inflation and rising interest rates, we’re starting to see deals take longer to complete. Many tenants and landlords who seek financing approval for their expanding projects have been waiting much longer. As interest rates continue to rise, this issue will persist,” said JLL.
“Shopping centres structured with good anchor tenants have been performing well. Specifically, centres anchored by grocery stores or pharmacies have seen little-to-no vacancy as repeat customers contribute to overall sales within the property. Tenants are also more likely to seek positions next to anchor tenants while avoiding shopping centres that have none. This has led to vacancy in properties without anchor tenants.
“As people have been eager to go out and spend money on shopping and eating out, we should continue to see robust retail sales. We’re just coming out of physical store restrictions, decreased opportunity to spend, and a sustainment of savings, which is leading to more consumer confidence and higher spending power pushing demand for spending.”
Raimundo said construction costs are still hindering the market, making it more difficult to renovate as well as slowing the development process.
The report also said new tenants in malls have been more confident to sign long-term deals, as they don’t anticipate the same recurring COVID restrictions that hurt them in the past.
“Before it used to be this real tug of war. It’s a landlord’s market, then it’s a tenant’s market, then it’s a landlord’s market. That seems to have gone away a bit. It needs to be both our markets otherwise this doesn’t work,” said Raimundo. “It helps with the transparency and it helps that they’re partners.”