Vancouver retail insight

Canada’s tightest retail market, Vancouver sees slower growth in 2023

April 17, 2023
  • Heli Brecailo
Local Market

The outlook for Vancouver's retail leasing activity remains positive for 2023, building on a successful 2022. Retail properties in Vancouver are still drawing in new concepts, both enclosed and open-air, with a particular focus on first-to-market. The total amount of square footage leased in 2022 exceeded the levels seen in 2019.

Retail foot traffic in Vancouver is poised to continue its upward trajectory, as more people return to public transit, offices, financial districts, and shopping centers. In-store shopping has made a strong comeback after years of emphasis on e-commerce, thanks to the easing of health mandates and a reduction in shopper hesitancy. Unlike other markets, Vancouver has experienced a steady recovery, making it an attractive destination for both retailers and shoppers.

Despite international travel still lagging, Canadian travelers are returning to Vancouver in large numbers, eager to experience what the city has to offer. The city's restaurants have seen a surge in diners, particularly during the holiday season in December and more recently on Valentine’s Day. However, inflation continues to limit demand for dining out and air travel.

The main factors that will drive rent growth in Vancouver's retail market in 2023 are expected to be fewer new spaces in the market, less available space, and high levels of inflation and interest rates. The year 2022 witnessed the fastest growth in retail rents in recent years. However, rent growth is decelerating as economic expectations worsen, uncertainty rises, and retailers feel less compelled to expand.

On the supply side, the availability of retail space is likely to remain limited as deliveries remain low. Although there was a push over the past 18 months to demolish and (re)build, construction starts have shown signs of weakness in recent quarters.

As demand becomes more uncertain and supply remains constrained, available rates have bottomed out.

Slowing recovery of downtown foot traffic and ridership in 2023

The recovery of downtown foot traffic and ridership in Vancouver is expected to slow down in 2023, following a year of progress in 2022. While the number of workers returning to downtown is predicted to increase, the rate of this increase is expected to be slower than in previous years, with office worker attendance still lagging behind other major Canadian markets.

The continuation of work-from-home and hybrid work arrangements is expected to hamper further recovery in public transit ridership, as downtown office workers make up a significant share of weekday volume. Translink ridership made significant strides in the spring and summer of 2022 but slowed down in the fall. As a result, it is estimated that ridership should be upwards of 80 percent by the end of 2023, up from 70 percent at the end of 2022.

Despite these challenges, the upcoming completion of the redevelopment of the old Canada Post building is expected to be instrumental in serving as a new economic engine for downtown Vancouver. With increased foot traffic from office workers and visitors, there will be an eastward expansion of the Central Business District.

Major Vancouver malls see declining vacancy rates and shift towards mixed-use development

Sales and foot traffic in Vancouver malls are bouncing back, and some have even surpassed pre-pandemic levels in terms of sales per square foot.

As a result, vacancy rates in Vancouver malls are declining, with more retailers seeing good opportunities in enclosed spaces. While major Vancouver malls still have slightly higher vacancy rates than before the pandemic, they are significantly lower than six months ago. Notably, optical, EV, athletic, and luxury retailers have expanded the most.

Looking ahead, there is a trend toward converting malls into mixed-use developments, and Vancouver is leading the way in this regard. The city has already seen many demolitions and conversions to mixed-use developments, and several more are currently underway.

2023 should see slower growth

Despite a recent dip in consumer sentiment, Vancouver's retail sales are expected to remain strong and see growth this year. The momentum from a successful 2022, combined with pent-up demand, should continue to benefit the industry.

However, it's unlikely that Vancouver's core retail sales will match the 6 percent YoY increase seen in 2022, as the Bank of Canada's measures to curb spending take effect. The best-performing categories in 2022 were health and personal care, clothing and accessories, and general merchandise, while electronics, sporting goods, hobbies, books, and music saw weaker sales.

In 2023, restaurants and food delivery are expected to face some limitations as pent-up demand is offset by more cautious spending from frugal customers. While the spring of 2022 saw a resurgence in food-service sales, with levels exceeding pre-pandemic numbers during the summer and fall, growth in this sector is likely to be constrained this year.

McArthurGlen is expanding its current footprint of 325,000 square feet by another 65,000 in phase three, which has been well-received by shoppers and retailers alike. This year, the mall will feature permanent additions of Oak & Fort and Moose Knuckles, as well as the opening of a new Plenty store, and the expansion of Versace and Mountain Warehouse.

Hudson’s Bay has responded to the growing demand for affordable shopping by announcing the opening of 25 new Zellers stores across Canada, two of which will be in Metro Vancouver. The Zellers locations will be inside existing Hudson’s Bay stores and range from 8,000 to 10,000 square feet, providing shoppers with even more value-focused options.

Next year, Time Out Market Vancouver will open at Oakridge Park, one of Vancouver's biggest redevelopment projects. It will be its largest food hall, spanning two indoor levels and covering 69,000 square feet. There will be a variety of cuisines, three bars, and a coffee shop, along with a stage and art and cultural spaces.

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