All of Canada’s suburban shopping malls will undergo a “fundamental structural change” in the next decade, according to a new retail market report head authored by James Smerdon, retail consultant and strategic planner with Colliers International Consulting in Vancouver.
The spring edition of the National Retail Report points to how more malls are transforming into town centres, with a mix of different uses like housing. More than any other land use, retail spaces are “reinvested in, rebuilt, remodeled, or somehow reinvented on a regular basis.”
Here are some highlights of the report, with notes on how shopping centres continue to evolve, and regional differences between retail sales in the first quarter of 2017.
Geographical conditions, large vacancies left by Target and other brands, fortuitous planning and the accompanying rise in urban land values are driving this evolution.
Every decade, shopping centres could be operating with a different set of tenants, as they usually operate in 10-year strategic planning cycles (or life cycles) due to standard leases, changing demographics and store design trends.
With this life cycle in mind, Smerdon says malls should put clauses in the lease, about demolition and relocation.
“They should also remove anything favouring the tenant that is linked to the continuous operation of an anchor tenant,” he notes. “If an anchor goes dark it is not the end of the mall, but they will want maximum flexibility to move the chess pieces around. If they can get those things, and are not hamstrung by parking clauses, sign as long a lease as possible.”
Being timeless, from a shopping centre perspective, means constant re-investment and a lot of imagination, he says, pointing to places like Toronto’s Yorkdale, Rideau in Ottaw and Metrotown in Burnaby.
“Those malls are at the pinnacle of retailing in Canada, and don’t have any issues with patchy or chronic vacancy,” he says. “The ones that have real problems are where there is a lack of tenant turnover, and struggling anchor tenants.
When these anchor tenants exit, owners and managers may experience a 20 per cent jump in vacancy. Local market conditions and an owner’s strategy will determine solutions, which could include filling the space with another anchor at lower rent, carve the space to compete with power centres for larger tenants, or adding a mix of different, customer-friendly uses.
The evolution from enclosed mall to a town centre that incorporate more density, residential components, offices and other uses, is happening more, with densification and rising residential land value encouraging the transition.
Retail by Region (2017 Q1)
In 2016, B.C. eclipsed Alberta’s sales for the first time this decade, but Alberta started the year off strong. The province showed strong retail sales growth so far, ranking third at 7.2 per cent, which reflects a shift in consumer confidence compared to the first two quarters of 2015 and 2016.
“We have seen a number of positive things happening in Alberta this year, from the return of Fort McMurray residents to increasing sales activity in Calgary,” says Smerdon. “It will be really interesting to see if the sales growth is sustained all year. We know the people are there, but if the incomes return then watch for a really good year for Alberta retailers.”
Prince Edward Island is one of the fastest-growing retail markets in Canada, with Q1 sales growth reaching 9 per cent. In 2016, the province ranked first in terms of retail sales growth rate relative to 2015, reaching sales of more than $2 billion.
“PEI has the lowest annual retail sales total of any province, so it tends to see greater swings on a percentage basis, notes Smerdon. “Being a market that has a strong tourism reliance, it could be that the weather was good for the summer, or that a new tourism ad campaign gained traction.”
Meanwhile, Manitoba, New Brunswick and Nova Scotia all experience much lower Q1 year-over-year sales growth when compared to Q1 2016. Ontario slowed somewhat to 6.5 per cent, not as strong as Q1 last year when it recorded 10.5 per cent.