The Greater Vancouver Area (GVA) retail market is entering a period of more stabilized vacancy rates, experiencing minor movement, but with lease rates continuing to inch upwards, according to a recent report by real estate firm Colliers.
“Retail spaces for previously fitted-out restaurants are in high demand considering today’s high costs building and fixturing an unfinished location,” said the company’s Greater Vancouver Retail Report, Spring/Summer 2024.
“City initiatives to improve the public realm and attract foot traffic to high-vacancy areas such as Gastown are underway where Water street is being closed to cars creating a pilot pedestrian only zone. As new supply is limited, landlords are keen on curating retail offerings in communities they are creating, causing availability and rates to vary based on perceived need and type of tenant.”
Sherman Scott, Vice President of Colliers in Vancouver, said leasing in the retail market has been extremely active.
“The vacancy rate is very low,” he said.
“We’re seeing an upward pressure in most markets on rental rates. There’s just a lot going on on the leasing front, which is nice compared to some of the other asset classes like office. It’s been a good market.”
Scott said population growth in the area and an increase in tourism have been big drivers for the retail market in the Vancouver area which bodes well for retailers in the future.
“There is some new supply coming on line but I don’t think there’s as much supply coming on line to meet the demand.”
It’s mainly on the ground floor of new residential buildings.
“Among the urban streets monitored, Gastown has, in recent years, experienced one of the highest vacancy rates. However, this has slowly improved with a decrease in 4 percentage points in vacancy half-over- half and stands to continue to improve moving forward. The City of Vancouver has made strides to improve foot-traffic in the area by introducing a pedestrian only area along Water Street. This pilot project will take effect this summer and local businesses have already observed an uptick in business activity since the project has been put in place. The popularity and success of the program this year will determine if it will be made permanent or brought back for future seasons,” said the Colliers report.
“Demand continues to be high for existing built-out restaurant spaces. This intense competition for locations is due to the steep increase in costs associated with building out a restaurant space from scratch which can cost upwards of 50-75 per cent more compared to adopting a recently vacated restaurant space. Though patrons remain budget conscious, British Columbia remains the third highest province for spending on food service and drinking establishments, with an average spending of $1.4 billion per month.”
The report said Canada Emergency Business Account loans, which matured early in the first half of this year, ended up being less of a story than feared. There were broad expectations of changes to the retail landscape as this loan deadline had the potential to pose feasibility challenges for some businesses already challenged through increased costs and pandemic restrictions. Those businesses that were going to close for financial reasons mostly had already, while most others managed to secure loans from other parties to extended their repayment programs.
“Rent continues to grow across urban and suburban markets, as limited new supply will continue to push rates higher. Rental packages from landlords will vary greatly on a case-to-case basis to attract the right tenant. This selection process is particularly critical in curated retail centres where retailer/ product mix affects the market positioning of the location. The retail market has seen a steady level of tenant replacements instead of vacancies, which has kept the vacancy rate low,” said Colliers.
“The population in Metro Vancouver is projected to reach three million residents in 2024 according to Statistics Canada projections and achieve about 21% growth over the past ten years. The continued growth in population supports economic growth, including the consumer base, as well as heightening competition in retail business to attract consumer attention by providing an evolving variety of goods and services.”
Colliers said continued interest rate cuts and stabilization of inflation would make a big impact on retail businesses. Lower borrowing costs may bring new retailers to the market and allow existing retailers opportunities to expand.
“While consumer spending per person may be down due to the high cost of living in Metro Vancouver and inflation pushing the costs of goods and services ever upwards, a rising population is pushing total spending up. Necessity retail businesses, such as grocery stores, pharmacy-drugstores, and medical clinics are seeing strong business as well as businesses catering to new residents setting up households,” added the report.
“Tourism is an additional driver of demand for retail, especially restaurants and destination shopping in the vicinity of the cruise port. While visitor counts are just short of pre-pandemic levels, the recreation and entertainment sector indicate that growth is returning to employment for the industry, contributing to the positive outlook.”
