Retail rents rose or remained steady across most formats during the second half of 2023 with slippage confined to a few street-based, downtown shopping districts in large Canadian cities. Newly released data from CBRE Canada shows strong performance for convenience/strip plazas and urban mixed-use developments, while Vancouver and Calgary are leading rent growth hubs among the 11 markets surveyed.
“Good real estate has and will continue to be leased quickly and has resulted in limited vacancy amongst the most in-demand formats,” observes Kate Camenzuli, vice president, retail, and Christina Cattana, research manager, with CBRE Canada. “This type of market activity is expected to persist and when paired with a softening supply pipeline, a byproduct of higher construction costs, could result in further rental appreciation in the coming year.”
Convenience/strip plazas enjoyed the most consistent gains nationwide, posting rent increases in eight markets: Vancouver; Calgary; Edmonton; Saskatoon; Winnipeg; Ottawa; Montreal; and Halifax. Average rent ranges are highest in Ottawa, where they top out at $45 per square foot (psf), and Calgary, where the high end hits $42 psf. Toronto is one of the most affordable markets for retailers in small plazas, with average rents in the range of $20 to $25 psf.
Neighbourhood malls and convenience/strip plazas command the lowest rents among Toronto’s retail formats by a margin of $5 to $140 psf, while convenience/strip plazas are much more evenly matched with other property types in other markets. In Calgary, for example, small plazas outperform power centres and enclosed community malls, and are close to on par with rents achieved in open-air community malls and urban and suburban mixed-use developments.
Since the spring of 2023, Calgary has charted rising rents in four categories of retail facilities — convenience/strip plazas, power centres, open-air community shopping centres and suburban mixed-use developments — as well as in two downtown shopping districts, along 17 Avenue SW and Marda Loop. Alistair Corbett, CBRE’s senior vice president in Calgary, points to “staggering” population growth and a paucity of new retail supply as two key contributing factors.
Similarly, “moderate new supply and growing tourist demand” are seen to be driving down retail vacancies and pushing up rents in Vancouver. There, average rents climbed over the second half of 2023 in enclosed community malls, neighbourhood malls, convenience/strip plazas, urban mixed-use developments and in the West 4th Avenue shopping district.
“This is expected to continue as many future development sites will see existing retail demolished and, at best, replaced by a smaller footprint,” observes Adrian Beruschi, CBRE’s senior vice president in Vancouver. “This will reduce the overall supply of retail in Vancouver, keeping vacancy low.”
Retail rents in urban mixed-use developments trended upwards in four other markets in addition to Vancouver: Toronto; Montreal; Edmonton; and Saskatoon. Space in Vancouver is the priciest, at $65 to $95 psf, with more modest and somewhat comparable rent ranges in Toronto ($35 to $65 psf) and Montreal ($30 to $70 psf). Among the other larger markets, average rents top out at $45 psf in both Calgary and Ottawa.
For Toronto, urban mixed-use developments were the sole category of retail facility to see rent growth over the summer and fall, although two street-based shopping districts, Bloor-Yorkville and King Street W., also recorded gains. Arlin Markowitz, CBRE’s executive vice president in Toronto, notes the arrival of a significant new player in the urban mixed-use category as some retailers in The Well — the massive redevelopment project in the downtown west district — opened for business last fall, while the full retail complement, including the food market, is set to open early this year. Elsewhere in Toronto, the Queen Street W. shopping district was the one area to register a decline in rents, while they remained stable in other types of retail facilities.
“The landlord community is working to differentiate in the face of current market conditions, implementing innovative technologies that aid in enhancing the customer experience,” Markowitz states. “New, exciting retailers and specialized product installations are also creating a draw in centres.”
With the exception of a few high-end downtown shopping districts — Alberni and Robson Streets in Vancouver, Bloor-Yorkville in Toronto and Rue Sainte-Catherine in Montreal — regional malls dominate, commanding the highest rents, by a wide margin, in markets nationwide. Stability typified the second half of 2023, with rents neither rising nor falling for the retail category.
Toronto ($155 to $165 psf), Calgary ($130 to $165 psf) and Vancouver ($100 to $155 psf) are the priciest markets for retailers, but CBRE analysts generally concur with recent conclusions from the credit rating agency, DBRS Morningstar, that the combination of surging population growth and little new development will serve regional malls well.
“Traditional enclosed malls, for their part, are poised to evolve,” Camenzuli and Cattana maintain. “2024 will be characterized by finding opportunities for growth through value-add.”
Perhaps offering some solace to areas caught up in continuing construction disruptions, Christopher Rundle, CBRE’s associate vice president in Montreal, notes a resurgence of interest in the Sainte-Catherine corridor, where national and international retailers have been opening flagship stores. “This long overdue influx is a result of the first major phases of the street revitalization being complete, filling up key vacancies that closed shop during the long process,” he reports.