The Marine Way Market in Burnaby is one of GWL Realty Advisors’ grocery-anchored regional shopping properties. (Courtesy GWLRA)

Neighbourhood shopping centres anchored by grocery stores, restaurants and “personal care” retail outlets are outperforming larger regional malls in both total annualized returns and occupancy, according to research from GWL Realty Advisors (GWLRA).

The MSCI/REALPAC Canada Annual Property Index, which tracks institutional-owned real estate through pension funds, insurance companies and major private equity groups, showed neighbourhood centres had an average vacancy rate of 7.6 per cent over the past 12 months ending in Q3 2019.

“This is converse to an average of about 10 per cent for other centre types, including regional malls and community centres,” GWLRA director of research and strategy Anthio Yuen told RENX.

“Some of these larger centres still continue to feel the effects of recent department store, general merchandise and fashion apparel consolidation of the market.”

The MSCI index also tracked investment returns during the same period and neighbourhood shopping centres provided a return of 5.5 per cent versus 3.4 per cent for other centre types.

Grocery e-commerce

Canadians spent $196 billion on food and beverages at grocery stores and restaurants in 2018. E-commerce, while growing, accounts for only 1.5 per cent of grocery sales, according to GWLRA’s research.

Grocery e-commerce has lagged other sectors including fashion and electronics due to additional structural barriers.

These include having much larger product lines, a range of product sizes, varying temperature and handling requirements, and fruit, vegetable, meat and dairy products at risk of spoiling.

While competition continues to intensify among grocers and other retailers entering the online grocery business, major grocery chains are focused on integrating in-store and online platforms to drive overall sales growth and brand loyalty.

Because of their expertise at retailing food, major chains are expected to dominate the future of grocery e-commerce while continuing to generate high traffic in their stores.

Experiential grocery and food shopping

High demand for experiential retail destinations among millennial consumers, coupled with busy family schedules that limit time to cook at home, mean dining out will continue to gain in popularity.

Quick-service food options in local shopping centres are also expected to see substantial growth, as are full-service restaurants and new grocery concepts where shoppers can dine-in, buy fresh groceries or purchase prepared meals in one location.

“You’re seeing the market evolve into more of an omni-channel platform, where retailers are integrating both in-store and online experiences supported by digital technology,” said Yuen.

“Grocers are upping the experience in stores by offering better click-and-collect, and meal and dining options in the grocery stores.”

GWLRA believes successful, next-generation neighbourhood centres will be characterized by:

* highly accessible locations with plentiful parking in increasingly varying forms, including short-term parking near pick-up depots to support click-and-collect and grab-and-go shopping;

* patio and outdoor dining, grocery storefront produce displays, and curated walking paths;

* a focus on a mix of uses, experiences and amenities, including commercial services, health and fitness, and activity areas for children;

* and loading areas to support increased e-commerce and rapid fulfillment needs.

“The growing focus on food is what’s going to drive the design changes for centres across the board, including grocery-anchored centres,” said Yuen.

Canada’s increasing diversity is also creating abundant niche opportunities for local retail centres catering to the specialized food preferences of ethnic segments.

According to Statistics Canada, visible minorities accounted for 22 per cent of the population in 2016. That share is projected to grow to 34 per cent by 2036.

“From the experience side, there’s been a greater focus on diversifying and providing these thematic food uses, with ethnic, health and specialty,” said Yuen.

GWLRA’s retail strategy

GWLRA provides asset management, property management, development and customized real estate advisory services to pension funds and institutional clients.

It oversees a portfolio of office, industrial, retail, residential and mixed-use assets, as well as a pipeline of new development projects.

GWLRA is strategically investing in food-anchored community shopping centres with stabilized income in place in response to the intensifying impact of e-commerce on regional malls and big box retailers.

Yuen said the company “continues to monitor highest and best use for not only our retail properties, but across our entire portfolio.”

GWLRA has a $1.3-billion retail portfolio and has invested $250 million in neighbourhood shopping centres in the past 24 months. It plans to make major future investments in community retail hubs.

GWLRA shopping centres

“Our recent shopping centre purchases are fairly reflective of our focus on food and needs of life entities,” said Yuen.

“Our big strategy has been on centres that have good access points with major arterial and highway access, growing populations, a focus on families, and a focus on complementary food and service tenants.”

GWLRA’s shopping centres include:

* the 340,000-square-foot Faubourg de la Gare Vaudreuil in Vaudreuil, Que., anchored by Walmart;

* the 274,000-square-foot Marine Way Market in Burnaby, anchored by Save-On-Foods, London Drugs, Canadian Tire and BC Liquor Stores;

* the 264,000-square foot Millstream Village in Langford, B.C., anchored by Michaels, PetSmart, Golf Town and Market on Millstream;

* the 257,000-square-foot Westbank Hub North in Westbank, B.C., anchored by Walmart and London Drugs;

* the 224,000-square-foot Bowmanville Retail Centre in Clarington, Ont., anchored by Walmart;

* the 183,000-square-foot Mega Centre Beauport in Quebec City, anchored by Cineplex Odeon and Bureau en Gros;

* the 179,000-square-foot Westbank Hub Centre in Westbank, anchored by Home Depot, Canadian Tire, Sleep Country and Mark’s;

* the 174,000-square-foot Faubourg Beauport in Quebec City, anchored by Walmart and Dollarama;

* the 151,000-square-foot Central Park Power Centre in Kelowna, anchored by Michaels and HomeSense;

* the 149,000-square-foot King’s Cross Shopping Centre in Surrey, anchored by Michaels, Mark’s and Dollarama;

* the 131,000-square-foot Plaza Vaudreuil in Vaudreuil, anchored by Home Depot;

* the 120,000-square-foot Northgate Village in Burnaby, anchored by PriceSmart Foods;

* the 106,000-square-foot Longwood Station in Nanaimo, B.C., anchored by Thrifty Foods;

* the 103,000-square-foot Riverside Heights Shopping Centre in Surrey, anchored by Buy-Low Foods, Shoppers Drug Mart and Fabricland;

* the 103,000-square-foot Scarborough South in Scarborough, anchored by Walmart;

* the 91,000-square-foot Sumas Mountain Village in Abbotsford, anchored by Save-On-Foods and Shoppers Drug Mart;

* the 73,000-square-foot Creekside Crossing in Airdrie, Alta., anchored by Sobeys;

* the 63,000-square-foot Centre Pierrefonds in Montreal, anchored by Maxi;

* and the 31,000-square-foot Plaza Pierrefonds in Montreal, anchored by Dollarama and Bulk Barn.