Canadian retail construction has fallen to its lowest level in a decade, creating an increasingly constrained supply of new space even as vacancy remains low and retailers continue opening stores across the country.
Construction starts dropped by more than 40% in the first half of 2026, according to JLL’s Fall 2026 Retail Market Dynamics report. Approximately 4.9 million square feet of retail space was under construction nationally at mid-year, compared with an existing inventory of roughly 805 million square feet. The national vacancy rate stood at 2.5%.
Leasing activity was also down approximately 11%, but the decline does not necessarily indicate a corresponding reduction in retailer demand. JLL identifies a shortage of suitable available space as an increasingly important constraint, particularly in Canada’s largest and most supply-constrained markets.
The national figures also conceal substantial differences across the country. Toronto and Vancouver have thin development pipelines, while Calgary is experiencing its largest retail construction cycle in a decade.
Canada’s Retail Supply Pipeline Shrinks
Canada’s retail construction pipeline has contracted after reaching approximately 6.2 million square feet in early 2025. JLL said developers have remained disciplined, concentrating construction in neighbourhood centres and general retail, particularly projects serving daily needs.
The slowdown is occurring alongside weakness in parts of Canada’s broader development industry. New condominium construction has fallen sharply in markets including Toronto, reducing one of the channels through which new urban retail inventory has traditionally been delivered as part of mixed-use projects.
CMHC reported that population-adjusted housing starts in Toronto during the first half of 2026 were among their lowest levels since 1996. Condominium launches have largely stalled, with only 156 condominium units starting construction in the City of Toronto during the first six months of the year, compared with an annual average of about 7,000 over the previous decade.
Not every residential development includes a significant retail component, but fewer large mixed-use projects moving into construction also reduce a potential source of future storefront inventory in dense urban markets.
Toronto’s Low Leasing Reflects Limited Supply
Toronto illustrates how declining leasing activity can coexist with an exceptionally tight retail market. Retail vacancy was 2.3% at mid-year, according to JLL, while average asking rents reached $37.19 per square foot.
Leasing activity nevertheless fell 15% year over year to approximately 1.3 million square feet during the first half of 2026, one of the lowest levels recorded over the past decade. Space under construction fell by more than half from a year earlier, with construction starts near historic lows.
JLL identifies supply as the more consequential issue, with no large development on the horizon capable of adding meaningful inventory. Retailers continue to commit to the market: Toronto accounted for 38% of notable store-opening announcements across the major Canadian markets tracked by JLL during the first half of the year.
Activity includes leases in Bloor-Yorkville, continued leasing along Yonge Street between Gerrard and Bloor streets, and retail incorporated into mixed-use projects including ROQ City, Bloor Crossing and the redevelopment of Galleria Mall.
The suburban picture is different. Halton Region is attracting grocery and large-format development as growing communities create new trade areas, with Costco and Fortinos among the retailers identified by JLL. Toronto ranks alongside Calgary as one of Canada’s two leading markets for new daily-needs development.
Lower leasing volumes in a supply-constrained market can therefore partly reflect a shortage of appropriately located and configured space, rather than simply weaker retailer interest.
Calgary Defies the National Construction Slowdown
Calgary is the most significant exception to Canada’s shrinking retail development pipeline. Approximately 2.1 million square feet of retail space was under construction at mid-year, up from 1.1 million square feet in late 2024.
Based on JLL’s national and local-market figures, Calgary alone accounts for roughly 43% of all retail space currently under construction in Canada.
The city is adding more retail inventory than it has in a decade, with much of the development concentrated in fast-growing suburban areas and weighted toward value-oriented daily-needs uses. Despite the new supply, Calgary’s retail vacancy rate was only 2.4%.
Vacancy was 0.8% in the Southeast and 0.9% in Airdrie, while approximately 80% of the development pipeline was pre-leased, according to JLL.
Projects including Taza and Bingham Crossing illustrate the pattern, with Walmart and Costco anchoring new retail serving expanding residential trade areas. Calgary’s Southwest and West are attracting a disproportionate share of larger developments as residential growth expands the customer base available to retailers.
Housing construction helps explain the contrast with Canada’s more constrained markets. CMHC reported 61 housing starts for every 10,000 Calgary residents during the first half of 2026, compared with 19 in Toronto and 51 in Edmonton. While Calgary housing starts have moderated from exceptionally high 2025 levels, construction remains above recent historical averages.
Consumer spending is also considerably stronger in Alberta. Retail sales in the province were 9.7% higher in July than a year earlier, compared with growth of 5.1% nationally, 4.9% in Ontario and 1.5% in British Columbia, according to Statistics Canada.
Edmonton shows a similar, though less pronounced, suburban development pattern, with approximately one million square feet of retail under construction at mid-year, heavily concentrated in South Edmonton.
Grocery Dominates New Daily-Needs Development
The composition of new development is changing along with its geography. Grocery stores anchored 96% of new daily-needs centres developed since 2022, according to JLL, up from 74% between 2016 and 2021. The shift reflects developer preference for formats supported by frequent visits and essential consumer spending.
Neighbourhood-centre vacancy has fallen from approximately 4.4% in 2017 to about 2% today, while strip-centre vacancy is even lower at 1.7%. Space under construction in neighbourhood centres has increased almost 60% year over year, and neighbourhood centres were the only major retail property format to record an increase in leasing activity while other categories contracted.
Grocery anchors can also support pharmacies, restaurants, personal services, financial services and other businesses dependent on recurring visits, making the format particularly attractive in newly developing suburban communities.
Value Retail Takes Share From the Middle
JLL’s research also points to a significant change within grocery-anchored development. Value-oriented grocery anchors represented 38% of new development between 2016 and 2021. For projects developed or expected to be completed between 2022 and 2027, the share rises to 52%.
Mid-range grocery falls from 45% to 30%, while premium grocery remains comparatively stable, moving from 17% to 18%.
The shift suggests that polarization in consumer spending is increasingly visible in the physical development pipeline. Value-oriented formats are gaining substantial ground while the traditional middle receives a smaller share of new investment.
At the opposite end of the market, major premium developments continue to attract retailers and capital where demographics and expected store productivity support the investment.
Vancouver Shows Demand at the Premium End
Vancouver provides the clearest example at the upper end of the market. The opening of Oakridge Park contributed to approximately 557,000 square feet of net retail absorption during the first half of 2026, Vancouver’s strongest first-half performance since 2020. Average asking rents reached $39.44 per square foot, the highest among the major Canadian markets tracked by JLL.
Oakridge’s completion also substantially reduced Vancouver’s remaining development pipeline. Approximately 526,000 square feet was under construction at mid-year, with construction starts close to decade lows.
Vancouver’s overall vacancy rate was 2.6%, although conditions varied sharply within the region. Downtown Vancouver vacancy remained at 9.9%, while Surrey and Langley were among Canada’s tightest retail submarkets at approximately 1.5%.
Luxury retail is a striking exception to the broader construction slowdown. JLL counted 30 luxury store openings in Vancouver between July 2025 and July 2026, compared with 18 in New York City, 11 in Miami and seven in Los Angeles, with Oakridge Park accounting for most of Vancouver’s activity.
Together, the value-oriented suburban development occurring in Alberta and premium investment in Vancouver illustrate how selective the current development environment has become. Conventional retail supply is growing slowly, while capital continues to flow toward projects where location, demographics, recurring demand or expected productivity provide a stronger investment case.
Low Vacancy Does Not Mean Every Storefront Is in Demand
Montréal provides an important qualification to the national scarcity story. Overall retail vacancy was just 2.1% at mid-year, but conditions varied substantially by property type. Power-centre vacancy tightened to approximately 1%, while strip-centre vacancy increased to 4.6%.
Regional malls continue to absorb the impact of former Hudson’s Bay space, while JLL found necessity-anchored properties continuing to tighten as some discretionary storefront formats face greater pressure.
Retail space is highly specific to location, size, configuration, parking, loading, neighbouring tenants and surrounding demographics. A large former department-store box does not necessarily meet the requirements of a restaurant, supermarket or small-format apparel retailer, just as vacant downtown storefronts do little for chains seeking suburban sites with parking and highway access.
Canada’s low headline vacancy rate can therefore coexist with visible empty storefronts. The constraint is less about an absence of vacant retail space than a limited supply of the right space in the right markets.
Consumer Spending Remains Resilient
The construction slowdown is occurring without a corresponding collapse in Canadian retail spending. Canadian retail sales reached $73.7 billion in July, down 0.7% from June but 5.1% higher than a year earlier, according to Statistics Canada.
Regional performance varied considerably, with Alberta leading the major provinces at 9.7% year-over-year growth. Toronto retail sales increased 2.4%, while Vancouver sales declined 0.8%.
JLL’s first-half analysis similarly found stronger growth in essential categories and food services than in core discretionary retail. Foodservice spending increased 5.6%, while dining represented approximately one-third of announced store openings.
The pattern aligns with where development capital is increasingly concentrated: categories and locations where landlords and developers have greater confidence in recurring consumer demand.
A More Selective Expansion Market
Canada’s constrained construction pipeline is likely to influence retailer expansion strategies over the next several years. In established markets such as Toronto and Vancouver, retailers seeking high-quality locations may face limited choices and greater competition for suitable space.
Some will need to adjust store sizes, commit to developments earlier or consider repositioned existing properties instead of relying on significant amounts of new supply.
Suburban growth markets present a different set of opportunities. Calgary and parts of Edmonton continue to add retail alongside residential development, while grocery-anchored projects provide a relatively predictable framework for new centres.
Mixed-use and transit-oriented development will remain another source of inventory in Canada’s largest cities, although weakness in condominium construction creates uncertainty around how quickly some projects will proceed. CMHC says new project launches have weakened across several major Canadian markets even as previously started projects continue toward completion.
JLL expects supply constraints to become more apparent as population and consumer demand strengthen again. With relatively little conventional retail entering the pipeline in several major markets, stronger demand could tighten conditions quickly.
For retailers planning Canadian expansion, the increasingly important question is whether the right space, in the right trade area and in the right format, will be available when they are ready to grow.
