The Canadian retail landscape experienced positive but mixed results in the first half of the year, with stronger performance being reported in select formats or nodes, according to the CBRE’s H1 2023 Retail Rent Survey.
“The current economic climate, inflation and elevated interest rates have paused leasing activity amongst some retailers, but not all. The most active category groups vary by market and are most frequently led by QSR and personal services. As has been the case, good real estate continues to be leased quickly, resulting in limited vacancy amongst the most in-demand formats, particularly those that are unenclosed,” said the report.
“This is expected to continue, and when paired with a softening supply pipeline – a byproduct of higher construction costs – could result in further rental appreciation over the next six months.
“Select cities have noted challenges with downtown areas, citing slower foot traffic from reduced office occupancy. This sentiment and its subsequent impact on urban retail formats are not uniform across the country; however, this category represents the greatest share of rent increases reported in this survey. In fact, five of 11 markets saw rental appreciation in two or more key urban nodes. High streets in Toronto, namely Bloor-Yorkville, remain a top destination for high profile retailers. Meanwhile, Sainte Catherine Street West in Montreal has seen an uptick in activity with initial phases of construction of the street revitalization nearing completion.
“More upward market movements were reported in H1 in comparison to prior editions of this report with 29 noted increases and only one reduction in benchmark rent prices. Geographically, Montreal and Calgary reported the highest number of rental rate increases, respectively up in eight and six formats or key urban areas.”
Key findings of the report:
- Open-air centres are reigning supreme with community (unenclosed), neighbourhood and convenience centres noting increased rental rate ranges in three of 11 markets. Demand remains strong for space in these formats, especially if grocery or food anchored;
- Key urban areas face various headwinds, however demand remains strong for the most desirable nodes: 30 per cent of high streets or streetfronts included in this report saw rental rate appreciation;
- Mixed-use, both urban and suburban, is gaining traction with each noting rental rate increases in three of 11 markets;
- Montreal and Calgary reported the highest number of rental rate increases, respectively up in eight and six formats or key urban areas. This was followed by Halifax (+5) and Toronto (+4); and
- Sentiment remains optimistic across markets despite economic conditions. Activity remains positive, with best- in-class locations leasing quickly.
“We’re back in retail,” said Kate Camenzuli, Vice President of CBRE and Practice Lead, Occupier for Retail, Canada and Cross-Border. “Good real estate is moving quickly. We’re seeing growth in the retail sector. High streets are continuing to grow.
“We’re excited to see how it continues to be a very tight market. The difficulty is that when it’s not a tight market it’s usually not super active. So it’s a very active market and across all metropolitan markets.
“I think we are seeing really good growth back into the cores of the city. I think we are seeing continued growth in community-based areas and suburban malls and streets.
“Overall high tides rise all ships and that’s one of the stories for this quarter that we are definitely seeing.”
Camenzuli said one trend that the retail industry is experiencing is groups that are traditionally street and new innovative street retailers are now coming back to the market.
“So we might see high street, suburban high street and sort of the out of enclosed malls outperform enclosed malls only because those are the new retailers right now that are coming into the market,” she said. “But the enclosed mall landlords have done a great job at attracting those traditional street retailers into the malls.”
She said moving quickly on good real estate is going to continue to be important.