Incumbent retailers gearing up for battle

In the post-Target retail scene, existing players have stepped up their game.

Hudson’s Bay Company purchased Saks Fifth Avenue and plans a Canadian rollout for the luxury banner, Loblaw bulked up by buying Shoppers Drug Mart, and Sobeys picked up the rival Canada Safeway chain. Those deals and others will create new demand for retail space and prompt portfolio restructuring programs.

At the International Council of Shopping Centres’ annual Canadian Convention in Toronto earlier this month, CBRE noted that retail space is at a premium.

Demand is strongest from retailers looking to enter Class A malls where available space is leased immediately and many high-profile brands are on waiting lists, CBRE stated.

All that demand has sparked furious construction activity at big malls across the country.

“There are few regional malls in this country that are not undertaking or planning additions and renovations,” said Tom Balkos, senior vice-president and a Canadian director of CBRE Limited’s Retail Services Group. “New retail concepts, especially outlet malls and urban formats, are also performing well and are likely to be replicated across the country.

“It has been difficult to satiate the demand.”

Retail construction activity increased in the first half of 2013, with 12.5 million square feet under construction nationally. Toronto represents approximately 50.5 per cent or 6.3 million square feet of space under construction, while Vancouver and Montreal have 2.5 million square feet and 1.3 million square feet under construction, respectively.

All three markets have seen a marked increase in construction since 2012. Approximately 5.1 million square feet of new retail space will be completed across the country in the second half of 2013, the largest amount of new supply in a six-month period since 2009.

Yorkdale Shopping CentreMalls getting into residential game

Major developers also told ICSC convention participants that virtually every regional mall in the country was undergoing, or is scheduled to undergo, major development (Image: Yorkdale shopping renovation due to be completed in 2016)

“If you think the big dominant centres are dominant today, wait for five years from now,” Moore said.

Not only are these big malls adding retail space, they are adding residential. Call it a reverse Joni Mitchell: they are ripping up parking lots and putting up condos (paradise?).

Ivanhoe Cambridge is all over that, Cadillac (Fairview) is doing it, Oxford is doing it,” said Moore. “They are taking those beautiful parking lots and going vertical.”

It makes a lot of sense to add residential, he said, noting most of the big regional malls are well-served by transit and the centres themselves already provide a robust base of services for those living nearby.

Retail at mid-year

CBRE issued its mid-year retail market view report around the convention and highlights include:

· Investment volume for retail assets in the first half of 2013 were $2.8 billion, just shy of the $3.0 billion first-half peak of 2011 and more than 15 per cent ahead of 2012’s pace.

· Private Canadian investors were the dominant retail purchasers, making up 33.5% of investment activity, down from 58.4% in the first half of 2012. This was mainly due to pension funds, which dramatically increased their share of investment volume from 7.7% a year ago to 33.5% in the first half of 2013.

· REITs/REOCs accounted for 22.5% of retail purchases in the six months of 2013 compared with 30.6% a year ago.

· Toronto dominated the transaction ledger with 57.6% of national retail trades. Montreal accounted for 10.7% (up nearly 42% from a year earlier); Calgary plunged to 2.8% of total investment volume from 17.7% a year earlier.

· Retail cap rates were “essentially unchanged.” Regional mall and neighbourhood centre cap rates fell six basis points to 5.50% and 6.39%, respectively. Power centre cap rates fell by four bps to 6.02%, strip malls saw cap rates increase by three bps to 6.41%.

Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more

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