- What Retail leasing activity has dampened across Canada’s major markets
- Why Supply is limited as construction of new retail spaces continues to slow
- What next Stakeholders remain positive about the near future amid high demand and rising rents
Amidst high interest rates, increased construction costs and lengthy timelines, retail construction has dropped off across major Canadian markets. This further constraint on inventory has led to a decline in leasing activity, but stakeholders remain positive about the next 12 months, JLL said in a new report.
Demand for retail space is strong, particularly in Calgary, Edmonton and Toronto, and rents are on the rise. Large retailers like Costco and La Maison Simons are continuing to expand, taking out leases on large spaces of more than 100,000 sq ft.
Short-lived relief is on the horizon for Montréal and Vancouver with the opening of new shopping centres, “but no long-term resolution is in sight,” JLL said.
Toronto
Demand surged in Toronto in the first half of the year, leaving retail tenants struggling to find space and driving rents up 3.1% year over year to $36/sq ft. Large spaces that came on the market, like the former Nordstrom at the Toronto Eaton Centre, quickly were able to find tenants.
Despite robust construction levels, the supply of new retail space continues to drop. Most development is in mixed-use projects where smaller retail spaces typically are available.
Restaurants are outperforming storefront retail in Toronto, JLL said. New food halls at The Well, the Toronto Eaton Centre and Waterworks have brought dozens of new food spaces to the city, and Eataly is set to open its fourth location, surpassing major centres like Dubai and New York City.
Vancouver
Vancouver’s retail market continues to be one of the most competitive in North America, JLL said, with rents rising rapidly. Average rent is now $37/sq ft, 5.2% above prices a year ago.
There was a bit of a slowdown in demand at the beginning of the year, but activity picked up in the spring. The pace of leasing, however, has declined, likely as a result of limited available space. High rents may also be discouraging retailers.
With a number of major mixed-use developments in the pipeline, the market is expecting “a significant boost,” JLL said. More than 270,000 sq ft of retail space is completing this year at Onni’s Gilmore Place, with another 850,000 sq ft at QuadReal’s Oakridge Park scheduled to complete next year.
Montréal
Retail demand has been strong in Montréal, and September saw the opening of Royalmount, a mixed-use development in midtown Montréal with 824,000 sq ft of retail space.
“Notably, the opening of Royalmount marks a significant milestone because it is the first new shopping centre of this size in Canada in nearly a decade,” JLL said.
Shopping centre availability rates are low in the city, but availability in outlet centres, strip malls and community centres is higher. Similarly, downtown vacancy rates are higher than those in suburban areas.
The average asking retail rent was $28/sq ft in Q2 — a 3.4% year over year increase.
Calgary
The Alberta city has one of the highest levels of net absorption and completion in North America, JLL said. The brokerage anticipates that demand will finish 2024 stronger than 2023.
Even still, leasing activity has taken a hit due to limited supply. Retail inventory is growing at 1.5% — roughly three times slower than population growth. Rents are up 3.2% year over year to $29/sq ft.
Primaris REIT is nearing completion on its open-air shopping centre and residential tower development at the former Northland Village Mall. However, leasing activity has favoured general retail and neighbourhood centres rather than malls.
Edmonton
Rapid population growth is continuing in Edmonton, leaving the city playing catch-up on the inventory side, with roughly 1.5m sq ft of retail space under construction.
Construction starts have declined since last year and, similar to most other major cities, construction timelines have expanded. “This slowdown in construction seems to be finally weighing on leasing activity, which has slowed this year,” JLL said.
Net absorption rates have been strong virtually across the board with the exception of power centres. Asking rents are up 3.9% year over year to $24/sq ft.
Ottawa
As retailers turned their focus to larger markets, rent growth in Ottawa has leveled off, taking the city from “one of the hottest markets in Canada to one of the coolest,” JLL said.
Despite this, availability is still low, at 2.2%, with little change on the horizon. Construction starts have declined and new supply will remain limited, with development applications for new retail space predominantly being in mixed-use developments.
One notable project from Lansdowne Live will see the creation of 50,000 sq ft of retail space, along with two residential towers with over 900 units.
