RioCan Real Estate Investment Trust says strong demand from grocery stores, pharmacies, fitness operators and value retailers is continuing to drive near-record occupancy levels across its retail portfolio, with leasing activity outpacing available space.
Oliver Harrison, senior vice-president of leasing and tenant experience at RioCan, said the company’s retail portfolio is now effectively 99 per cent leased, supported by population growth, limited new retail supply and a tenant base that has become more resilient and necessity-focused.
Harrison said the strongest demand is coming from categories such as grocery, pharmacy and fitness, along with value-oriented retailers including Dollarama and TJX. While broader retail headlines have pointed to pressure on consumers, he said many of RioCan’s tenants are reporting strong results because they provide essential goods and services or appeal to shoppers looking for value.
The company is also continuing with development and intensification projects, with about $100 million targeted annually toward development and capital recycling initiatives. Harrison said RioCan has roughly 100,000 square feet of new-build construction underway, but added that the projects will not materially change the broader supply-demand imbalance that has helped support high occupancy levels across its markets.
Harrison said the high occupancy rate “is a function of the supply-demand dynamics that we’ve been talking about now probably for at least two years, where you had significant population increase in Canada, and you had no new retail supply being built.”
“So you’ve got retailers, particularly grocery stores, who are continuing to look to grow their footprint. And the reality is, once they kind of chewed through the existing vacancy in the pipeline, there’s nothing being built beyond that.
“We’re at a point now where our retail portfolio is effectively 99% leased, which is quite remarkable. And I really don’t see that situation changing materially over the short term because I think in order for that to change you would need a significant amount of supply to be introduced to the marketplace, which just isn’t going to happen. It’s definitely not going to happen in the next 24 to 36 months.
“Or you would need there to be some major kind of economic event or a significant issue with one of our retailers, which we’ve done a really good job of improving and solidifying our tenant base, to make them more resilient, more necessity-based, and to be able to withstand any cycles in the economy. So I think we’re in good shape for a while to come.”
Grocery, pharmacy, and fitness are the big three categories that seem to be in high demand for high-quality new opportunities. Then you’ve got value retailers like Dollarama, TJX, who are on a tear and continue to look to grow their footprint.
Harrison said RioCan’s leasing pipeline continues to be at extremely high levels on a historical basis.
“There’s just far more demand than we have availability for,” he said.
There’s an odd scenario currently in the Canadian retail landscape. News headlines continue to proclaim the plight of the financially-stressed consumer. Yet certain segments of the retail sector are booming.
“It is a bit of a challenge to sort of correlate the narrative that retail’s struggling, the Canadian consumer is under duress, yet a number of our tenants are reporting record results, whether it be Canadian Tire, whether it be Dollarama,” said Harrison.
“I think the common thread that you see is the tenants that are succeeding in the environment that we’re in right now are more value-focused, necessity-based tenants.
“And when things are a little bit tighter, and people’s pocketbooks in particular are a little bit more under stress, it is those value tenants that end up outperforming, or the necessity-based tenants, and that’s kind of what you’re seeing in our portfolio now.”
More from Retail Insider:
