The Canadian retail sector is seeing momentum continue to build, with most markets achieving stability after a couple of challenging years and retail activity on the rise, says a new report by commercial real estate firm CBRE.
There was an upswing in retail market fundamentals in the second half of 2022 compared to the first half, with 24 retail rent increases in key shopping nodes across the country and only three reductions on benchmark rent prices, according to CBRE’s H2 2022 Retail Rent Survey, a snapshot of retail trends and rents for 10 Canadian cities in the second half of last year.
“Despite economic headwinds, retail and retailer sentiment remains positive across Canada” said Alex Edmison, CBRE Senior Vice President with the urban retail team. “With an array of new retail developments cropping up across Canada, the stage is being set for a robust 2023.
“I would say the sentiment out there it’s generally positive. There’s a lot of talk of a recession. But in my day to day business I wouldn’t say I’ve seen much evidence of it.”
Edmison said he has spoken with other real estate professionals on the CBRE retail team and in general business is really good.
“We could do with less inflation. We could do with everyone just not mentioning recession ever again and we could do with interest rates being lower but aside from that the fundamentals for a landlord or even a tenant they’re pretty good,” he said.
“It’s a tight market which we particularly see in the suburbs. That shows health. It would be a little less tight if people could build but what we hear is construction costs are prohibitive and it restricts supply.
“And generally sales are okay. I think there’s a retrenchment to bricks and mortar. Online is never going away. It’s only going to become more advanced and ever increasingly important if not an absolutely essential component of any tenant’s business.”
Here are some key takeaways from the Retail Rent Survey by CBRE:
- Open-air centres reign supreme. Power, community (unenclosed), and neighbourhood centres saw increased rental rates in four of 10 Canadian cities. Demand remains strong for space in these formats, especially if grocery or food anchored. Edmison said “it’s just bread and butter, no pun intended . . . If you’re looking for certainty, if you just put bodies in a location they tend to spend money. So that’s what grocery stores do. It’s just incredibly simple. They just continuously, tried, tested and true, draw bodies.”;
- Western provinces had the most widespread retail rent appreciation. All cities west of Winnipeg reported multiple retail rent increases. Saskatoon and Vancouver led the way here, with both markets seeing increasing rates in six retail formats or key urban areas; and
- Construction costs and higher interest rates are impacting leasing. Tenants and landlords are working together to get deals done despite inflationary cost challenges. There is high demand for second-generation space or units with an existing build-out in place. But inventory is limited and good space leases quickly.
The CBRE outlined the following notable retail projects in major Canadian centres to watch for this year:
- In Vancouver, The Post downtown and the expansion of Willowbrook Mall in Langley have generated significant leasing traction;
- Edmonton’s ICE District is seeing excitement and pedestrian traffic grow with the openings of Loblaws City Market, The Banquet and Canadian Ice House restaurants;
- The latest phases of Saskatoon’s newest and most prominent retail developments, Brighton Marketplace and Meadows Market, are both nearly fully leased. New phases are expected to start soon;
- In Winnipeg, The Refinery District and Polaris Place are creating new neighbourhoods with promising retail in some of the city’s fastest-growing areas;
- Toronto has seen a burst of activity among luxury tenants inking deals for space along Bloor Street. The Well, a transformative development, opens later this year and its retail space is 80 per cent pre-leased;
- Ottawa’s retail development pipeline is the most active it has been in years. Excitement is building around the sale of the Senators and the associated future of LeBreton Flats; and
- In Halifax, mixed-use developments are transforming the downtown core. Richmond Yards, the city’s largest mixed-use development, is creating a new community and opportunities for retailers to expand.
The CBRE report also highlighted the most active retailers and growing segments for 2023:
- In the Grocery segment, concepts like Farm Boy and ethnic grocers including Oceans are expanding throughout Ontario. Meanwhile larger national brands have begun downsizing and reducing their home goods offerings;
- In the Food segment, Quick Service Retail (QSR) activity has remained strong and is benefitting from less competition against cannabis users for prime space. Freestanding pads with drive-thrus are still in high demand but are difficult to find in urban areas;
- The Service/Medical sector has seen significant growth from non-traditional users such as fertility, medical spas, and plastic surgery clinics. The introduction of these minor elective surgery clinics has offloaded hospital demand and is a boon to centres, as they typically occupy non-primary locations; and
- The Digitally Native segment is also growing, in brick and mortar, online and through other channels. Brands like Mejuri, Allbirds and the recently converted Monos are paving the way for more groups to understand that brick and mortar is an important part of the retail ecosystem.
Edmison described the mood of the retail sector as “cautious optimism.”
“There is a desire by strong tenants to grow and they will do that,” he said.
The Executive Summary of the CBRE report said:
“The Canadian retail landscape continued to build momentum in the latter half of the year with markets noting stability and increased levels of activity. Asking rents have appreciated in response to a combination of demand, limited supply, and elevated construction costs.
“Focus across Canada has remained on construction cost challenges and higher interest rates. Together, this has put a spotlight on demand for second-generation space or units with existing buildout in place. With limited inventory, however, good real estate is being leased quickly. National and international brands have been active across Canada in a broad range of sectors including a noted resurgence of luxury brands in urban, high-profile destinations.
“More market movements were reported as of H2 when compared to H1 with 24 noted increases and only three reductions on benchmark rent prices. Geographically, the majority of the increases were seen in western provinces.”
Related Retail Insider Articles
- Canadian Jewellery Brand Suetables Announces Plans to Open Store at The Well in Downtown Toronto [Interview]
- Saint Laurent to Open 10,400 Square Foot Flagship Store on Toronto’s Bloor Street Luxury Run [Exclusive]
- Canadian Retail Market Adapting to New Reality 2 Years In: Interview with CBRE’s Arlin Markowitz
