Vacancy in Vancouver’s retail sector is at a record low and it could get even lower.
According to commercial real estate firm Colliers’ new retail report, Vancouver retail is roaring back, with record low vacancy rates across many different neighborhoods. The Urban Retail Colliers Index Vacancy Rate is 2.5 per cent, while the Suburban Retail Colliers Index Vacancy Rate is 2.3 per cent.
“Historically, Vancouver is a city that has performed at the polar opposite of everywhere else in North America. And in retail so far this year, vacancy in all nodes has remained astonishingly low,” said Madeleine Nicholls, Senior Managing Director for Colliers in Vancouver. “Although we are waiting to see if talk of a recession will impact Vancouver retail, the story for Vancouver retail for 2022 is resiliency. Vancouver is bucking retail trends across the rest of Canada. Despite all the uncertainty, retail here has performed really well.”
She said the low vacancy rate is a result of several factors in the Vancouver market.
The first is the fact that lockdowns and public health restrictions in British Columbia were not as extensive and long as in other jurisdictions such as Ontario and Quebec.
“Vancouver had the smallest amount of time when things were locked down and that was really at the beginning of 2020 where everything shut really for just a few months and then started gradually opening – the stores and the restaurants. They started opening again with the reduced capacity and the plexiglass,” she said. “But they opened only a few months after being closed. Nowhere else in the rest of the country did that happen.”
Nicholls said Vancouver in 2021 had a growing population, adding that the census metropolitan area grew at twice the pace of the national average with 190,000 people coming to the region in the past five years.
“Vancouver’s not overbuilt to start off with. The vacancy is low and layered on top of that is we looked at 21 new developments coming online over the next several years and when I totalled up all those there’s around 6.6 million square feet of additional retail that’s coming on,” she explained. “And a lot of it is pre-leased. Vancouver retail space is not overbuilt. There’s still a very healthy demand for it indicated by the fact that so many of these future projects are pre-leased.
“This makes way for the new retail to come in. COVID has been an accelerator. Some of the retail was already on the way out. It hadn’t reinvented itself with the times to keep up. So now we’ve got an opportunity for the new wave to come in.”
Nicholls added that pre-pandemic Canadian retail sales were $619 billion (annually) and now that’s at $675 billion.
“Much higher than the previous high and we’re still growing. We’re on our way to $700 billion. So people are still spending money. I think it’s important to say that because there’s this notion that people have stopped spending,” she said.
“The other thing is people are spending money on different things. In 2020, everyone was at home, everyone had the urge to redo their landscaping, redo kitchens, buy computer equipment, outfit home offices, big ticket items, big spending . . . We’re not going to see that big spending now but what we’re seeing they’re spending on, because people are still spending, they’re spending on clothing, they’re spending on experience, they’re spending on restaurants, they’re spending on food. The amount they’re spending on groceries has gone through the roof. Part of its inflation for sure but it’s also the home meal kits that arrive at your door. There’s a huge wave of that . . . But now that we don’t have to cook at home all the time, we want to get out, we want to get out to restaurants.”
Luxury has also been strong as people have a little more money to burn in their jeans, having saved money in the past two years by not travelling for example, and they want to spend it.
The Colliers retail report identifies several factors that are still contributing to a sense of uncertainty in the Vancouver market including 20-year-high inflation, decade-high and rising interest rates, risk of recession, increasing construction costs, labour shortages, and the war in Ukraine.
“Landlords, developers, and occupiers are all watching carefully to see what change the next few months brings,” said the report. “There are a significant number of new, mixed-use developments under construction with the prime retail units being leased up fast, sometimes years in advance. In general, we are seeing demand to lease retail space across with the spectrum of tenants, with the exception of middle of the market fashion retailers, a trend that started before the COVID-19 pandemic and accelerated in the last two years as a result of several factors including e-commerce and significant international competition.
“In the short-to-medium term, based on the current tenant demand we are seeing, we expect slight upward pressure on net rents and a decline further in vacancy rates.
“Longer term, the supply of new retail space may slow, with many developers pausing proposed projects not yet under construction, watching if interest rates are going to continue to climb and if construction costs will increase, moderate or decline. If these projects remain on hold, we anticipate further pressure on net rents and a further reduction in the vacancy rate. In addition, government-imposed rent control policies are affecting planned, new residential rental buildings, many of which contain ground floor retail. Landlords are being pinched between being unable to raise rents enough to cover costs and rapidly rising inflation increasing the costs of borrowing, materials, and labour.”
Citing the Conference Board of Canada, the report said 2021 retail sales in Vancouver were 14 per cent above 2019 levels, recording $45.7 billion in sales ($40.0B in 2019). While 2022 is expected to experience a small decline in the two per cent range, 2023 and beyond are expected to return to growth with total sales values above the 2021 total.
“Compactly designed sites that help serve a variety of community needs are growing in popularity. Alongside site intensification, verticality, and mixed-use sites, most are thinking about how an even greater number of pieces fit together. There are growing calls from municipalities, residents, and businesses for compact, complete communities where residents can live, work and play in an efficient, more environmentally conscious way. As these forward-thinking demands increase, expect to see further proliferation of mixed-use sites,” said Colliers.
“Well established and embraced now, online shopping is not going away. Consumers have become attached to the convenience and product selection of buying online, but in-person shopping has seen a resurgence in recent months as COVID-19 pandemic-related restrictions have been removed. As a result, retail adjacent services are looking to locate closer to the populations they serve. Micro-fulfillment, another use we are watching, is a concept that places small-scale warehouse facilities in densely populated urban locations closer to the consumer to improve delivery times, oftentimes in underutilized spaces of existing properties.”
