Toronto retail insight

Optimism for continued ridership growth

TTC (Toronto Transit Commission) ridership has rebounded significantly since the height of the pandemic, with additional growth expected from new rapid-transit lines under construction. The TTC is operating at service levels above current demand in anticipation that ridership will eventually catch up.

Overall ridership is at about 74 percent of pre-pandemic levels, with weekend ridership already at 75-80 percent, demonstrating that riders are taking more leisure and discretionary trips despite recent security issues.

Toronto's transit ridership, as reported by the Urban Institute, is currently among the most heavily used transit systems in Canada and the U.S., demonstrating its importance to the city's residents and visitors.

Beyond public transportation, visitor numbers are beginning to approach pre-pandemic levels, indicating a recovery in tourism. Although some gaps remain in visitor numbers, particularly from outside Canada, this represents an opportunity for growth as international travel continues to recover.

Torontonians continue to eat out

Retail sales in Toronto have kept pace with retail inflation, growing by 2 percent year-to-date. This demonstrates a resilient market despite increasingly challenging times for shoppers. Consumer spending has maintained a steady pace, reflecting a positive retail environment.

Used cars, shoes, health and personal care products, and convenience items have emerged as the top performers, reflecting consumers' search for value, convenience, and personal well-being.

In contrast, growth in specialty food and home improvement has slowed, suggesting that consumers are focusing on essentials and buying fewer homes. Gasoline sales have also declined, as gas prices have come down from last year's highs.

Ontario's food-service industry, particularly full-service restaurants, has performed exceptionally well. Sales in this sector have now surpassed pre-pandemic levels, indicating a strong recovery and renewed consumer confidence in eating out.

Despite slowing net absorption, fewer retail completions will hold market together

The local retail leasing market is experiencing low retail completions, indicating a competitive market for new retail space. Especially in a high-interest-rate environment, developers have demonstrated a cautious approach to new projects, which may help maintain stability in the market.

With a slowdown in net absorption, the market is moving toward a more balanced relationship between supply and demand, where landlords should maintain stable occupancy rates.

Neighbourhood centres experienced strong absorption in the first half of 2023, driven by the development of new residential areas in the Greater Toronto Area. Retail in these areas benefit from increasing population density and demand, creating opportunities for growth (as explored in our recent GTA Insights and Opportunities report).

The arrival of Costco in Islington, Etobicoke not only demonstrates confidence in the local market but also represents the successful infill of a former Sears warehouse. In addition, StatCan data suggests a notable shift in consumer preferences, leaning towards general-merchandise stores such as warehouse clubs, supercentres, and similar retailers.

Looking ahead, the limited-retail development pipeline suggests that retailers will have to look to future supply to secure space. The completion of major notable projects such as The Well and Sugar Wharf downtown this year, as well as the upcoming retail completions at the Galleria Mall in West Toronto next year, will further elevate the local market. However, there are no major deliveries planned for 2025.

Office amenitization and flight to quality boost retail

Despite ongoing challenges, downtown Toronto is seeing positive trends in the office market and, by extension, in retail. In July, overall office attendance reached 52 percent, indicating a gradual return of workers to the workplace. The increase in attendance on Mondays and Fridays, along with the continued popularity of Wednesdays, suggests that workers are increasing their frequency but maintaining flexibility in their work schedules. Office attendance peaks at 67 percent on Wednesday.

Office and retail trends are merging. The office sector is also taking a more experiential approach, incorporating amenities and services that create a dynamic and engaging environment for occupants. This trend benefits the retail sector, as the amenitization of office buildings attracts foot traffic and potential customers.

In addition, the flight to quality in the office market not only enhances the workplace experience and employee well-being but also positively impacts the retail sector. The increased foot traffic, enhanced workplace experience, and vibrant downtown atmosphere that result from quality office space contribute to increased foot traffic and potential sales for nearby retail establishments.

Apparel and dining openings contribute to mall recovery

The mall market continues to show strength and signs of a rebound in foot traffic. After a significant decline in vacancy last year, vacancy rates have continued to decline slightly this year, indicating healthy demand for mall space and a positive outlook for the industry.

The positive momentum in the mall market is supported by a strong comeback in new-store openings and in relocations, particularly in the apparel and dining sectors. This activity reflects retailers' renewed confidence in the mall environment, and the presence of these new offerings enhances the overall shopping experience and attracts foot traffic.

Rising sales per square foot highlight the increasing productivity and attractiveness of mall space while growing foot traffic speaks to the continued appeal of the mall experience for shoppers. While some malls have yet to fully recover from the impact of the pandemic, the overall upward trend suggests a steady recovery.

While downtown malls and mixed-use centres with an office component have experienced a somewhat slower recovery than other property types, this is due to the gradual increase in office occupancy. As more employees return to the workplace, the foot traffic and overall vibrancy of these malls is expected to improve in line with the broader recovery in office occupancy.