Canada’s Retail Momentum is Building

Most Canadian cities are seeing increased retail rents but higher construction costs and elevated interest rates present challenges for retailers

The Canadian retail sector is seeing momentum continue to build, with most markets achieving stability after a couple challenging years and retail activity on the rise.

There was an upswing in retail market fundamentals in the second half of 2022 compared to the first half, with 24 retail rent increases in key shopping nodes across the country and only three reductions on benchmark rent prices, according to CBRE’s H2 2022 Retail -Rent Survey, a snapshot of retail trends and rents for 10 Canadian cities in the second half of last year.

Our report shows that asking rents appreciated in response to a combination of demand, limited supply, and elevated construction costs.

Here some key takeaways from the Retail Rent Survey:

• Open-air centres reign supreme. Power, community (unenclosed), and neighbourhood centres saw increased rental rates in four of 10 Canadian cities. Demand remains strong for space in these formats, especially if grocery or food anchored.
• Western provinces had the most widespread retail rent appreciation. All cities west of Winnipeg reported multiple retail rent increases. Saskatoon and Vancouver led the way here, with both markets seeing increasing rates in six retail formats or key urban areas.
• Construction costs and higher interest rates are impacting leasing. Tenants and landlords are working together to get deals done despite inflationary cost challenges. There is high demand for second-generation space or units with an existing build-out in place. But inventory is limited and good space leases quickly.

“Despite economic headwinds, retail and retailer sentiment remains positive across Canada,” says CBRE Senior Vice President Alex Edmison. “With an array of new retail developments cropping up across Canada, the stage is being set for a robust 2023.”

Some of the notable retail projects to watch for this year:

• In Vancouver, The Post downtown and the expansion of Willowbrook Mall in Langley have generated significant leasing traction.
• Edmonton’s ICE District is seeing excitement and pedestrian traffic grow with the openings of Loblaws City Market, The Banquet and Canadian Ice House restaurants.
• The latest phases of Saskatoon’s newest and most prominent retail developments, Brighton Marketplace and Meadows Market, are both nearly fully leased. New phases are expected to start soon.
• In Winnipeg, The Refinery District and Polaris Place are creating new neighbourhoods with promising retail in some of the city’s fastest-growing areas.
• Toronto has seen a burst of activity among luxury tenants inking deals for space along Bloor Street. The Well, a transformative development, opens later this year and its retail space is 80% pre-leased.
• Ottawa’s retail development pipeline is the most active it has been in years. Excitement is building around the sale of the Senators and the associated future of LeBreton Flats.
• In Halifax, mixed-use developments are transforming the downtown core. Richmond Yards, the city’s largest mixed-use development, is creating a new community and opportunities for retailers to expand.

Here are the most active retailers and growing segments for 2023:

• In the Grocery segment, concepts like Farm Boy and ethnic grocers including Oceans are expanding throughout Ontario. Meanwhile larger national brands have begun downsizing and reducing their home goods offerings.
• In the Food segment, Quick Service Retail (QSR) activity has remained strong and is benefitting from less competition against cannabis users for prime space. Freestanding pads with drive-thrus are still in high demand but are difficult to find in urban areas.
• The Service/Medical sector has seen significant growth from non-traditional users such as fertility, medical spas, and plastic surgery clinics. The introduction of these minor elective surgery clinics has offloaded hospital demand and is a boon to centres, as they typically occupy non-primary locations.
• The Digitally Native segment is also growing, in brick and mortar, online and through other channels. Brands like Mejrui, Allbirds and the recently converted Monos are paving the way for more groups to understand that brick and mortar is an important part of the retail ecosystem.