The Canadian Retail Market Is Coming To Grips With Pandemic Uncertainties
Canadian retail tenants and property owners appear to be experiencing something that was in short supply during the past year and a half: stability.
That is the conclusion of global real estate services and investment management firm Colliers, which surveyed the views of more than 300 retailers across a range of real estate-related topics. It asked them about vacancies and unit needs; trends in store traffic, sales and profits; and the impacts of e-commerce.
The findings depict a Canadian retail industry coming to terms with unprecedented disruptions and changes in everything from how consumers shop to how stores fulfill orders. Based on responses, Colliers concluded retail vacancies are stabilizing, and retailers and landlords “can more confidently move ahead on the next phase of their strategic plans.”
Although the survey did not suggest a return to pre-Covid shopping behaviours, it does appear that retailers and shoppers have learned how to operate in this new environment.
“The past year has seen an acceleration of change in retailer and shopping patterns,” said Jane Domenico, study co-author and senior vice president and Canada national lead for retail real estate for Colliers. “However, we see greater stability and a normalization of change and trends going forward. The uncertainty of the pandemic appears to be behind us.”
Despite the hand-wringing that has characterized retail in the past year, Colliers found total consumer spending between March 2020 and May 2021 declined only slightly compared to pre-pandemic forecasts. The firm credited retailers’ ability to keep pace with changes, including consumers’ embrace of online shopping.
Moving forward, retail vacancies are expected to decline slightly across most asset types. The exception is enclosed shopping centres, where survey results indicated vacancies will increase by 2.4% over the next three years.
Tenant diversification might be a solution for some of those struggling malls. Colliers reported foot traffic at enclosed shopping centres that included a grocery store was an average 7% higher than at those without a supermarket.
Domenico said this could be attributed to the idea that while many consumers have grown accustomed to ordering merchandise of various kinds online, most prefer to do their shopping for food and other necessities in person.
“The importance of necessity retail from a property standpoint is that it is one of the lowest categories for e-commerce penetration and people tend to go there once or twice a week,” she said. “So as e-commerce takes a stronger part of retail sales, supermarkets and similar retailers will help attract consumers to the properties and will benefit the rest of the retailers around it.”
The survey found that the percentage of retailers offering an e-commerce platform doubled during the coronavirus pandemic, to 58%. However, 77% of retailers said in-person shopping remained their most profitable business model, well ahead of omnichannel models in which consumers buy online and then either pick up goods at the store or have them delivered.
Colliers suggested this finding is due to retailers’ high transportation costs and competition from much larger e-commerce players. Domenico said geography could also be a factor in Canada, where consumers in suburban or tertiary cities tend to be highly dependent on brick-and-mortar stores.
In fact, shopping centres away from urban centers actually saw foot traffic increase during the summer of 2020 after a difficult spring.
“It will take many, many years before e-commerce dominates consumer retail spending here,” she said. “Canada’s low population density makes it very hard to fulfill online orders and, as a result, we are one of the developed countries with the lowest levels of e-commerce penetration.”
That doesn’t mean Canadian retailers can ignore e-commerce. The survey found that 16% are exploring alternative forms of real estate, such as leasing industrial warehouse space, to aid distribution.
Domenico predicted more companies will experiment with hybrid building models that combine retail and distribution functions, a trend that Colliers also noticed in its study of industrial real estate.
“Industrial tenants said they are looking at adding retail components, and retailers said they are looking at industrial,” she said. “As e-commerce grows further, the line between product-selling retailers and distribution industrial tenants will blur even further.”
This article was produced in collaboration between Studio B and Colliers. Bisnow news staff was not involved in the production of this content.
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