Canadian shopping centre owners have spent billions on expansions and improvements to their top properties in recent years, and they continue to outperform their American counterparts despite ongoing challenges.

Yorkdale Shopping Centre in Toronto, owned by Oxford Properties Group. (Image courtesy Oxford Properties)

“The best malls are getting better,” said Craig Patterson, a retail analyst and founder and editor-in-chief of Retail Insider who authored the new Canadian Shopping Centre Study 2017 for the Retail Council of Canada.

“There’s a lot of competition among the top landlords and things are happening quite quickly. We went through a crazy whirlwind in the retail industry in Canada over five years, where we saw a lot of major international retailers come to Canada.”

In fact, about 50 international retailers entered the Canadian market last year — compared to 21 in 2016 and 28 in 2015.

Food, entertainment, amenities and technology

In addition to introducing new retailers, Canadian shopping centres are also placing a larger emphasis on enhanced food and beverage offerings by incorporating full-size restaurants and bars and adding higher-end food halls to complement more traditional food courts. Patterson said some leading landlords plan to double the space devoted to such offerings.

Movie theatres have attracted customers to shopping centres for years. However, they’re now being complemented with new entertainment centres such as The Rec Room, or through art shows, exhibits, children’s attractions and special promotions.

To make the shopping experience more comfortable and convenient, malls have become more aesthetically appealing and have introduced upgraded washrooms, comfortable seating, free wireless Internet, improved wayfinding systems, enhanced parking solutions, concierges and personal shoppers.

While e-commerce has taken a bite out of brick-and-mortar retail, shopping centres are also taking advantage of technology to make parking easier and utilizing it through such things as touchscreen navigation panels, virtual fitting rooms, augmented reality areas and click-and-collect zones.

“Every mall that is strong has either done some significant recent improvements and enhancements or is in the process of doing it or (is) planning to,” said Patterson.

Densifying properties

Landlords are also densifying by adding housing, office space and hotels. There are plans to add residential towers to Yorkdale Shopping Centre and Bayview Village in Toronto, and Vancouver’s Oakridge Centre will eventually see thousands of residents living in multiple towers directly above an overhauled and expanded shopping centre podium.

“Shopping centres are often in great locations and have been built with transit around them, and roads and access,” said Patterson.

“They’re great for shopping centres but also for residential development, so landlords are playing around with their real estate and adding housing and office to create mixed-use, which is what shopping centres were meant to be originally. It just never panned out that way.”

Comparing Canada and the United States

There’s approximately one-third less retail space per capita in Canada than in the United States, which Patterson described as “over-malled.” He expects to see that gap narrowed with U.S. shopping centre closures.

Canadian malls average $766 in sales per square foot for non-anchor tenants, compared to $466 per square foot south of the border. Those respective numbers have been growing in Canada and decreasing in the U.S. since 2014.

While no Canadian shopping centre can match Bal Harbour Shops in Bal Harbour, Fla., where it’s estimated sales exceed $3,000 per square foot, eight malls in Canada topped $1,000 per square foot in the 12-month period ending June 30, 2017 — led by Yorkdale Shopping Centre for the second year in a row at $1,653.

The study ranks the 30 most productive shopping centres in Canada, and 14 of them are owned by Cadillac Fairview. Oxford Properties, Ivanhoé Cambridge and QuadReal are also well-represented on the list. Eleven of the 30 malls are in the Greater Toronto Area and seven are in the Greater Vancouver Area.

CF Toronto Eaton Centre, which ranks a distant second to Edmonton’s West Edmonton Mall in square footage, remains North America’s busiest shopping centre. It surpassed Burnaby, B.C.’s Metropolis at Metrotown by more than 22 million annual visitors and the top American centre (Ala Moana Center in Honolulu, Hawaii) by eight million.

Three of Canada’s busiest malls (CF Toronto Eaton Centre, Vancouver’s CF Pacific Centre and Ottawa’s CF Rideau Centre) are in downtown cores. None of the top 10 U.S. malls are downtown.

The study says this can be attributed to factors including stronger urban cores in Canada, as well as a combination of history, culture, downtown population concentration and mix, investment priorities, and transit access compared to most cities south of the border.

Dealing with Sears’ departure

While some Canadian shopping centres are still trying to fill vacancies left by Target’s departure in the spring of 2015, landlords will soon have approximately 15 million square feet more vacant space due to Sears Canada’s closure.

“Landlords will have to find creative uses for these Sears spaces,” said Patterson. “Some are going to be easier to deal with than others.

“There aren’t many tenants that would take an entire Sears box other than perhaps a Hudson’s Bay (HBC-T) or Simons. But neither of them are going to be opening a lot of stores in the next while. What landlords are going to have to do is divide or split up these boxes into different spaces. At Fairview Mall in Toronto, Indigo (IDG-T) is moving into part of the Sears space.” 

Patterson added Sears’ departure could be good news for owners of A-class malls because the department store chain had restrictive covenants in some leases. They tied landlords’ hands and prevented them from doing certain renovations or expansions or bringing in specific tenants.

Shopping centres most likely to be hurt are smaller or older locations in secondary and tertiary markets, many of which have already seen better days. When an anchor leaves, it can sometimes trigger clauses in leases that allow other stores to follow suit if they’re not doing well.

“The biggest cities and the best malls are going to succeed, but that’s not always going to be the case for all of Canada,” concluded Patterson. “Some centres will struggle and they always will.”