Research

Calgary retail insight

Despite the slowdown, the Calgary retail leasing market remains strong

September 08, 2023
Contributors:
  • Heli Brecailo
Calgary sees signs of deceleration

Despite recent signs of deceleration, Calgary continues to experience robust leasing volumes exceeding 2019 levels. The continued influx of net migration and construction of new suburban communities has created demand for retail amenities, resulting in pre-leasing activity that extends into 2024 and 2025.

In turn, there has been a slowdown in net absorption of retail space this year, along with a similar trend in completions. This indicates a slower pace of supply and demand. Deal velocity, which measures the speed of transactions, has also slowed − indicating that investors and tenants may be more cautious about committing to new retail space.

Still, developers and investors remain confident in the city's retail potential, despite the headwinds and expectations of a broader economic slowdown. In 2022, Calgary had one of the largest volumes of completions in the retail market.

As rents have increased, Calgary's retail market continues to show strength. This is due to strong operators in certain categories, such as food and beverage, coupled with a shortage of available retail space. Landlords are aware of this dynamic as they curate the mix of retailers in their properties. In the short term, rents are expected to remain stable with modest increases, with availability expected to fluctuate just under 4 percent.

Consumers should continue to turn to discount shops and general merchandisers in the face of persistent inflation, particularly in food. However, there will also be continued upward pressure on experiential retail as consumers seek unique and engaging retail experiences.

On track for visitor growth

Calgary's retail market is also benefitting from positive visitor trends. Passenger traffic at Calgary International Airport (YYC) has steadily increased, with year-to-date passenger traffic up 37 percent over last year.

To meet this growing demand, the airport is adding new routes that are expected to further increase passenger traffic. In addition, WestJet, one of Calgary's major carriers, has expressed interest in doubling its capacity. This commitment from WestJet further demonstrates the potential for increased foot traffic and consumer spending in the city.

Demand for experience drives restaurant traffic

Retail and food-services sales in Calgary have shown a strong recovery, especially in the restaurant sector. Calgary restaurants have experienced one of the strongest recoveries in the country. The hosting of the Stampede festival in July further boosted the performance of restaurants, driving increased traffic and sales. Additionally, over the summer the foot traffic has surpassed last year's numbers.

Food services, including both restaurants and quick-service restaurants (QSRs), have performed well in Alberta overall. Among them, full-service restaurants have shown a slight lead in terms of performance. This indicates that consumers are returning to dining out and enjoying sit-down experiences.

Calgary remains one of the strongest markets in terms of retail sales, with double-digit growth compared to the previous year. This reflects the city’s positive consumer sentiment and willingness to spend.

Used cars, convenience items, health and personal care products, and shoes have been among the best-performing categories. These segments have likely benefitted from consumer preferences and changing market dynamics.

On the other hand, floor covering, window treatment, and other home furnishing items, as well as gasoline and specialty food have experienced slower growth or declining sales. This could be attributed to increased demand for value and fewer home purchases.

Declining office vacancy boosts retail

The return of office workers and the stabilization in the office market have contributed to an improved outlook for downtown retailers, who have yet to fully recover. The high demand for class-A office space, particularly in the Central Core, has driven the need for amenities and services within buildings.

Landlords recognize the importance of providing amenities in their buildings and are becoming more selective in curating retail offerings to meet the specific needs and preferences of tenants and office workers. This could include hair salons, food options, convenience stores, tailors, and dry cleaners.

As office occupancy improves and competition among businesses increases, there will likely be a positive impact on downtown retail activity. The declining retail vacancy rates in the inner city further indicate increased demand for retail offerings.

There is high demand for smaller retail spaces, with 1,000 square feet being particularly sought-after. This shortage of available space suggests that retailers will experience more favourable conditions in the downtown area.

Programs to enhance downtown will generate more retail opportunities

Calgary’s downtown development incentive programs have the potential to positively impact the retail sector. By encouraging the revitalization of the downtown core and creating a more diverse mix of uses, these programs will attract more people to the area, increasing foot traffic and the potential customer base for retailers.

The conversion of underutilized office space to residential units will also bring a larger population to the downtown area, creating a built-in customer base for retailers. The presence of more residents in the vicinity will boost demand for goods and services, supporting local businesses.

Further, the expansion of these programs to include conversions into hotels, schools, and performing-arts spaces could promote tourism and cultural activities. Increased hotel capacity could attract visitors who are likely to engage in shopping and dining. As schools and performing-arts spaces are established, they can contribute to a vibrant community that attracts people to the downtown core, benefitting retail establishments. Finally, the creation of new amenities and outdoor public spaces as part of the revitalization efforts could enhance the overall appeal of the downtown area.

Calgary major malls see athletic expansion

The expansion of athletic and apparel stores in major malls in Calgary continues to enhance the shopping experience for both locals and visitors. Some notable additions in the first half of 2023 include Alo Yoga, Athleta, JD Sports, Bäre Activewear, and Nike. In addition, jewelers Mejuri, Pandora, and Maxime's have recently expanded their presence in the malls.

Further, popular brands Uniqlo and Decathlon have announced plans to open in Calgary malls, adding to the growing list of retailers. Malls in Calgary are attracting new tenants and filling vacancies, leading to fewer available spaces.

Notably, malls are witnessing a positive trend in foot traffic, which is contributing to the malls' rising productivity. Calgarians are showing an interest in visiting malls and engaging in retail experiences, creating a favourable environment for retailers to thrive.

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