Research

Canada Retail Outlook – Fall 2021

Shopping centres and downtown areas should see a gradual re-expansion of retail trade areas

November 30, 2021
Contributors:
  • Heli Brecailo
  • Claudia Verno

For a quicker recovery, shopping centres will bet on their strengths and cater to a more local customer base. After an initial shock in 2020, leasing teams rolled up their sleeves in 2021 to prepare for major tenant changes over the next few years. 

With a wave of restructuring of fashion brands in 2020, a natural cycle of lease terms ending, and several mall-based retailers downsizing, shopping centre owners are taking the opportunity to actively reconfigure spaces and strengthen their tenant mix.

Not only are leasing teams actively relocating retailers and rearranging, merging, and splitting spaces, but they’re also taking a step back to look at past experiences and enhance what works best for their loyal customer base. 

For example, the addition of electric-vehicle and luxury-car stores has proven to be highly productive in some locations. Lucid Motors is opening stores in Vancouver’s Pacific Centre and Toronto’s Yorkdale Mall. In the athletic wear category, The GAP’s Athleta line is opening locations in both Ontario and B.C.

Even as they recover from months of effective closure during lockdowns, shopping centres will invest and look for new concepts to draw traffic.

Malls in Toronto were closed more than six months altogether due to a series of provincial restrictions. Although lower rent collection, especially for enclosed properties, has limited landlords’ ability to offer tenant inducements, it hasn’t precluded them from seeking out new shopping experiences.

The expansion of food services and entertainment will remain an important traffic-boosting strategy. Quick-service restaurants Chick Fil A and Jollibee – which are under aggressive expansion programs in Canada – have brought excitement and long lines to properties where they recently opened new locations. Shopping centres also made layout changes to accommodate delivery personnel such as Skip the Dishes and Uber Eats.

With the return of foot traffic and the recovery in retail sales, shopping centres will be in a better position to make bolder moves to bring in fresh concepts. Notably, Cadillac Fairview has partnered with Tokyo Smoke to add cannabis shops to the Toronto Eaton Centre, Fairview Mall, Sherway Gardens, and Rideau Centre. Other audacious changes like this will ensure malls’ long-term vitality.

Other shopping centre trends include:

  • Shopping centres will accelerate layout change
  • Malls will continue to deal with shopper hesitancy
  • Shopping centre sites will go vertical
  • Food courts will be invigorated with more-targeted aid programs
  • Regional centres will take advantage of this holiday season
  • Retailers most affected by staffing and supply-chain issues will turn to online sales
  • Trade areas will gradually re-expand
Retailers will help improve the overall downtown experience

Retailers will play an important role in bringing office workers back to downtown areas. To bring office workers out of their homes in a post-COVID environment, office buildings will increasingly seek to enhance the downtown experience with supporting retail and amenities.

Indeed, the vitality of downtown cores depends on the return of food courts, food halls, quick-service restaurants, full-service restaurants, coffee shops, fashion, and specialized services that support office workers, tourists, and students.

It’s not in anyone’s interest to see downtown trade nodes like the PATH – the underground shopping centre in Toronto’s downtown core – lose retailers, and therefore relevancy. Maintaining and enhancing these pedestrian-friendly systems is an essential pillar of the downtown comeback.

Retailers and landlords will need to collaborate and support each other in any effort to make downtowns lively again. Retailers may need extra help to operate with reduced traffic. City and transit authorities will also have to step in to make downtown businesses more compelling and more accessible. 

The return of retailers and office workers will have to take place simultaneously – one depends on the other. For workers to come downtown again, the downtown experience needs supporting retail to open. With more stores open, more people come downtown, which in turn attracts more retail.

Other downtown insights include:

  • The retail mix will change
  • Downtown comeback will require effort from several stakeholders
  • Downtown areas will not disappear
  • Office workers continue to trickle back
Thanks to strong macro fundamentals, 2022 will be bright for retailers

The outlook for retailers will remain bright through 2022, thanks to strong macro fundamentals. However, supply chain challenges and labour shortages in high-contact sectors have moderated retailers’ prospects relative to our views earlier in the year. 

Indeed, the long anticipated post-reopening rebound of the Canadian economy is being hampered by supply-side shocks. Canada is experiencing back-to-work pains, with demand surging ahead of supply now that vaccination has become widespread.

The supply-driven increase in inflation is tempering what would otherwise be surging economic growth. Aggregate demand is elevated, with consumers, investors and governments alike expanding their planned purchases. But the supply-side just cannot keep up with demand. 

Indeed, there are signs of capacity constraints in many areas of the economy, from labour shortages to supply chain bottlenecks due to a delayed return to work.

The growing gap between demand and supply is resulting in above-target inflation and rising pressure on the Bank of Canada to begin removing monetary stimulus -- though we do not expect policy rates to rise anytime soon

Canada retail leasing market sees improved activity

The Canada retail leasing market will see improved activity over the holiday shopping season and in the first half of 2022, but the entirety of 2021 should remain below 2019 levels despite a strong summer rebound. In the first half of 2021, Ontario and Quebec suffered the most disruptions, raising business uncertainty and affecting the ability of many retailers to make plans and lease spaces. 

Retailers continue to look at foot traffic and exterior entrances to lease spaces. The focus remains outside CBDs, as many office workers have stayed away from downtown areas and worked from home. With a more relaxed provincial health framework, Calgary and Edmonton have seen strong space-absorption this year.

Retailers see improved foot traffic

Despite major markets having experienced restrictive lockdowns this year, overall spending remained elevated. Retail sales in 2021 are up eight percent compared with 2019. Canadians accumulated an unprecedented amount of savings during the pandemic, which will should in part be redirected to retail and food services.

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