Despite mounting economic headwinds and high-profile retail closures, Canada’s retail sector is showing signs of resilience and adaptability, according to Keith Reading, Senior Director of Research at Morguard.
“It’s sort of an interesting time for retail,” says Reading. “On the one hand, there’s certainly been some successes over the last couple of years. Retail’s outperformed expectations in terms of growth and expansion. Rents have held up pretty well. We’ve got shortages of high quality space in several markets. So it’s been a good run.”
However, Reading notes that conditions have shifted in recent months.
“In the last six months or so, we’ve had some pretty significant headwinds begin to show themselves,” he explains. “And those are not just from a macro standpoint in terms of what’s going on with our friends in the south and what that will mean economically. Concerns with inflation and prices rising. Interest rates are still, although they’ve come down, a little bit restrictive.”
Among the challenges, Reading highlights a wave of retail closures, including major names.
“We’ve had some closures that are pretty high profile. Hudson’s Bay being one of them. But not just Hudson’s Bay. We’ve seen a few others.I mean, the Beer Store, those locations. There’s a pretty good list of closures. We’re now seeing the closure of a couple of Whole Foods in Toronto, which I think, who would’ve thought that?”
Still, he points to bright spots within the sector.
“We’ve also seen some pretty healthy growth, particularly in service retail and discounters,” says Reading. “We’re seeing condos built across the country. They’re not necessarily filling up as quickly as we’ve seen in the past and we all know the issues with the condo market. But some pretty healthy growth with respect to grocery stores in some of those condos and other types of service retail, banks, nail salons, all the things that people need on an everyday basis.”
Looking ahead to the rest of the year, Reading anticipates continued market movement and adjustment.
“We’re seeing quite a lot of churn in the market,” he says. “With those closures and openings, we’re seeing quite a few companies adjust to things like higher costs of product, particularly imported product. So I think you’re going to see a lot of churn still over the balance of the year.”
Economic uncertainty continues to weigh on retail decision-making.
“You’ve got retailers that are concerned again about inflation, concerned about interest rates, concerned that the job market’s kind of taken a bit of a nosedive as well. So what that’s going to mean for retail sales and particularly discretionary spending,” says Reading. “So I think retailers are going to be quite wary. And I think you’ll see a little bit of pullback on expansions just as retailers sort of adopt a wait-and-see stance with respect to the rest of the year.”
Retailers are hoping for stabilization in trade and supply chains, but Reading says confidence remains shaky.
“The hope is that, in an ideal world, we’ll get a trade deal with the U.S., things will settle down, and then the retailers, the supply chains, the wholesalers will adjust accordingly,” he notes. “Right now there’s so much uncertainty. I saw a CEO survey the other day where the consensus was that it’s not if we’ll have a recession, it’s when. And so I think those types of headlines, retailers look at those and say, ‘Okay, we’ve expanded in the past couple of years. Now’s maybe the time to wait a little bit.’”
As for market performance, Reading predicts a temporary cooling.
“I think the retail market will slow a little bit,” he says. “But as we’ve seen for quite a few years now, the Canadian consumer has been more resilient than I think we expected. So I think we’ll just see sort of a flattening or a leveling off over the balance of the year. And then I think we’ll see what happens at the holiday season. And then I think in 2026, hopefully things will start to look much better.”
On the investment side, recent activity is signaling longer-term confidence in the sector.
“We’ve seen a few significant malls sell recently, particularly in Quebec, but in other parts of the country as well,” Reading adds. “And I think that’s a real signal that there is some optimism with regard to the medium to long term in terms of just where we think retail will be.”
Reading says many of these acquisitions involve repositioning plans and mixed-use development strategies.
“We’ve had quite a few private capital buyers buy malls, the intention is to add some residential, reposition the mall a little bit,” he says. “So I think there is a real sense of optimism for the medium to long term. I just think we’re in for a little bit of choppy waters, I think, over the next six to 12 months.”
The recent Morguard report on real estate can be found here.
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