In its latest Toronto Retail Insight, Spring 2024, commercial real estate firm JLL predicts a softer and more stable Toronto retail market this year.
The report said Toronto’s retail leasing market is stabilizing with a deceleration of rental growth. Limited leasing options and economic uncertainty are challenges for retailers, but demand for retail space exceeds supply. Overall retail sales have plateaued, but food services and certain retail sectors show growth, including shoes, health and personal care, and sporting goods.
Also, the report said Downtown Toronto is experiencing a gradual return to the office, increased pedestrian activity, and a rebound in visitor spending.
“The retail leasing market in Toronto is currently experiencing a period of stabilization, following a decline in leasing volume since its peak in the second half of 2022. Hurdles for expanding retailers include economic uncertainty and stalling sales, compounded by the historically low availability of retail space and limited leasing options in premium spaces,” said JLL.
“Despite these challenges, demand for retail space exceeds supply, as indicated by an increase in net absorption in 2023. Over the past six months, several national and international retailers, including Earls, Eataly, Club Studio, and Burberry, have announced store expansions in the Toronto market.
“While rents in Toronto are still on an upward trend, the rate of growth has slowed compared with the previous year. It is expected that inflation and rising property taxes will contribute to further rent increases as landlords pass on costs to tenants.”
In terms of construction activity, there is currently limited development taking place in Toronto, despite the completion of 320,000 square feet of retail space in The Well, said the report.
“The majority of the space has already been pre-leased, resulting in minimal new vacant retail space expected to come to the market in 2024,” it said. “Leasing activity in Toronto has focused on general retail, neighborhood centres, and malls. Malls, in particular, have seen a significant increase in interest, even with the departure of Nordstrom from major centres.
“In summary, leasing momentum continues to slow after its peak in late 2022, accompanied by limited new supply and premium leasing options, but some rent growth is anticipated. The absence of new supply should help maintain stability in the market.”
JLL said the outlook for retail in Toronto has weakened due to reduced spending on retail goods, particularly in the home-related category, and to the decline of key economic sectors such as banking. However, there should be growth in food services, fashion, and sporting goods. Also, the long-term prospects for Toronto’s retail real estate market remain strong, driven by the city’s high number of immigrants and its role as a hub for international retail concepts.
Retail sales in Toronto have experienced a significant deceleration, with little or no growth anticipated for the current year, despite a spending revival during the 2023 holiday season. There has been a shift in consumer spending from home goods to services, leading to a notable decrease in spending on home improvement and furnishings. However, health and personal care, shoes, and sporting goods have seen a surge in sales.
The economic outlook for Toronto in 2024 has softened, primarily due to declining sectors such as finance and business services, which play a significant role in the city’s economy. The long-term fundamentals nonetheless remain strong, driven by an influx of immigrants and positive prospects for GDP and employment growth.
In the food services sector, both full-service and limited-service restaurants performed better than retail goods in 2023 and are expected to continue growing at a decelerated rate in the single digits, said the report.
“Public transit ridership in Toronto has made significant strides in recovery, in both local transit (TTC) and regional commuter rail (Go Transit). In Q3-23, GO Transit recovered 91 per cent of its 2019 trips, while TTC recovered about 70 per cent,” added JLL.
“Union Station, the region’s primary transportation hub, continues to open new retail and dining options, including Nespresso and Blue Bovine Steak + Sushi House, as part of its ongoing revitalization process. The downtown core remains a magnet for shoppers, resulting in increasing pedestrian flow on Yonge Street between College and Front.
“Tourism in Toronto is recovering quickly, with visitor numbers approaching pre-pandemic levels. While Canadian visitors have returned, international visitors − and especially from China, Japan, and South Korea − still lag. Despite this, overall visitor spending now matches pre-pandemic numbers.”
Casdin Parr, Executive Vice President, Retail Advisory Services, JLL, said there is a flight to quality in the Toronto market. That includes the best enclosed shopping centres and high streets.
“That is where the retail tenants are investing their capital, investing their time in finding the best real estate and we’re finding a lot of momentum across multiple assets and asset classes in the GTA in the best spaces,” said Parr.
“Really, we’re seeing the shopping habits of the consumer being much more discretionary with their time. Whether they are going to a high street store or they’re going to Yorkdale or Toronto Eaton Centre, they’re going on a mission for specific product or service and being discretionary with their time more so than ever before.
“Gone are the days of just going to the mall for three or four hours in the afternoon. They’re going shopping for a specific store or a tenant, a specific restaurant and carry on with their day.”
He said the return to office in Toronto has been significant, particularly in the last half of 2023 and at the beginning of this year.
“There’s a great buzz and feel in the city,” said Parr. “We’re seeing some of that reflected in the key parts of the downtown core.
“2024 is going to be a really exciting year for Toronto in particular. A lot of new doors to open in the marketplace and some new projects coming on and new announcements to come as well. Be another good year ahead.”
