Calgary retail insight

Local market

Calgary's retail leasing market is expected to remain positive this year. With Calgary's population growing at a rapid pace, we continue to see sustained retail leasing activity from new development projects and food and beverage operators competing for similar spaces. Retail leasing activity has remained above 2019 levels.

Calgary is expected to have one of the strongest net absorptions of any major market due to continued population growth driven by 20-somethings, migrants from B.C. and Ontario, and immigrants from Ukraine. Despite the prospect of a slower 2023, the appetite for new retail space remains strong, and the market hasn't shown significant signs of slowing down anytime soon.

New properties are experiencing strong pre-leasing activity, with tenants looking out to 2023 and 2024, particularly for well-located new residential growth areas with strong convenience anchors.

In addition, as shoppers are more likely to venture beyond their neighbourhoods, there's been increased interest in general retail and shopping centres. That said, interest in neighbourhood centres remains relatively strong.

Calgary should continue to see growth in retail asking rents, although not as fast as in 2022. With the relaxation of health and safety regulations in the first quarter of 2022, pent-up demand for retail space led to an acceleration in rates starting in the second quarter. However, rate growth should slow as economic conditions become more uncertain and demand weakens.

Calgary appears to be weathering the construction challenges better than most major Canadian markets, with deliveries increasing in 2022. Proportionally, Calgary has one of the highest levels of space under construction. However, supply is expected to decline, and existing inventory will need to continue to meet current demand.

Ultimately, demand will continue to drive rates higher, while decreasing levels of new supply should keep available space stable.

Calgary sees a resurgence in foot traffic and tourism spending

Calgary has seen a significant increase in foot traffic in shopping centres, downtown, offices, transit, and recreation. After a focus on e-commerce in recent years, brick-and-mortar shopping has made a strong comeback as health mandates have eased and consumer hesitancy has subsided. Calgary has seen a steady recovery as it hasn't had as stringent health measures as some other Canadian markets.

As downtown office vacancies continue to decline and business sentiment stabilizes, downtown retailers have renewed their sense of optimism. In addition, festivals, conventions, cultural events, and tourism have resumed, bringing more workers back to the office.

Domestic, U.S., and international travellers contributed to more than double the total number of visitors in 2022 compared with 2021. With Canada lowering the requirements for international flights and making it easier to enter the country again, the number of international visitors has steadily increased.

In addition to travel, the demand for experiences is also evident in sit-down restaurants. The number of diners in Calgary spiked in December, helped by holiday celebrations, and more recently during the week of Valentine's Day. However, inflation is expected to continue to dampen demand despite Calgarians' enthusiasm for dining out.

Primaris redevelops Northland Village Mall

Overall, sales and traffic continue to recover in Calgary's malls, with some exceeding pre-pandemic levels in terms of sales per square foot.

As a group, Calgary's major malls have experienced lower vacancy rates than before the pandemic, as some malls took advantage of the pandemic to renovate, reconfigure, and fill vacant space. At Southcentre Mall, Winners, Dollarama, PetSmart, and Decathlon have taken over the former Sears.

Unlike Vancouver and Toronto, which have focused on mall conversions into mixed-use developments, Calgary has focused on greenfield developments integrated with residential communities. That said, Primaris is moving forward with the redevelopment of Northland Village Mall in the northwest quadrant, adding 230 residential units.

Calgary retail sales expected to hold up despite spending slowdown and focus on value

Despite the recent deterioration in consumer sentiment, Calgary’s retail sales are expected to hold up and experience some growth this year. Calgary enjoyed a successful holiday season with sales up 14 percent year-over-year.

After a strong finish to 2022, retail sales in Calgary will continue to benefit from momentum and pent-up demand. Calgary's core retail sales rose by 9 percent year-over-year in 2022, the highest level since the start of the pandemic. However, in 2023, it is unlikely that Calgary will match that performance, given the impact of the Bank of Canada's measures to slow spending.

In 2022, the best-performing categories include clothing and accessories, health and personal care, and electronics, while the worst performers include those related to the home. It is expected that 2023 will see a continuation of these trends.

With warmer weather and the Stampede approaching, restaurants are expected to reopen their patios and get busier. So far, Calgarians have not stopped eating out despite higher food prices as Calgary is ahead of the other markets in recovering restaurant traffic. In the spring of 2022, Alberta's food service sales regained much of the ground lost during the lockdown and surpassed pre-pandemic levels in the summer and fall.

To meet the increased demand for value, Hudson's Bay is in the midst of opening 25 new Zellers stores across Canada, including one in the Greater Calgary area. These stores, ranging from 8,000 to 10,000 square feet, will be located within existing Hudson's Bay stores.