Commercial: Retail Space – Market Outlook

At the onset of the pandemic, retail faced significant challenges due to lockdowns and social distancing measures. However, within a few years, retail has regained favor, particularly necessities-oriented retail catering to daily needs, which is now one of the most favored asset classes among investors.

Retail is undergoing rapid transformation driven by evolving consumer behavior, with e-commerce playing a significant role in amplifying change. The shift to omnichannel retail strategies is crucial for survival, requiring progressive management that can leverage technology, embrace emerging trends like pop-up stores, and utilize scarcity marketing tactics to drive consumer urgency.

Retail properties must also adapt to accommodate new-age tenants and consumer preferences. Strategies include replacing outdated food courts and department store anchors with experiential uses, improving shopping convenience, and optimizing tenant mix to attract foot traffic.

Given Canada’s high household debt levels, retail sales could be impacted if the economy falters, adding potential volatility to the retail sector. Retailers must continually adjust their product offerings, while retail properties must carefully manage their tenant mix to optimize retail traffic.

Best bets for the Canadian real estate industry in 2024

• Sentiment surrounding the necessity-based retail asset class, especially in grocery-anchored developments serving communities experiencing robust population growth, has notably improved.
• Neighbourhood/community shopping centres have ranked particularly high for investment prospects in recent surveys, highlighting their attractiveness for investors.

Retail Insolvency and Growth Opportunities

• Retail insolvency filings are increasing, but they offer growth opportunities in markets with limited vacancy.
• Consolidation, rollup, and acquisition are expected among established brands, driving growth in 2024.

The Canadian retail landscape is set for transformation in the coming year. Changing consumer behavior and spending patterns will challenge retailers to innovate and stay relevant in the minds of shoppers. While some churn is anticipated, it is expected to benefit the sector, which has experienced minimal vacancy in highly sought-after formats.

Sources:

This article reflects our research of reports and evaluations by CBRE Canada, PWC report, Globe & Mail, Colliers Canada, Avison Young, and JLL Canada.