Canada's Condominium Magazine
We’ve all heard that retailers in Canada who don’t cater to the needs of their younger, mobile device-wielding customers could find themselves in trouble, saleswise. Younger shoppers, who are said to prefer to shop online than to go to an actual store, value convenience above everything when shopping, though they also respond well to loyalty programs that make them feel valued as customers. Online sales growth is expected to outpace traditional in-store retail in coming years. But does this mean the country’s malls are suffering today?
Not according to Toronto commercial real estate firm Avison Young. The retail sector is doing quite well, a new report from AY says, despite “economic headwinds, retailer failures, digital disruption and the purchasing habits of a new generation.” That seems like a lot to cope with and still come out “doing just fine,” but AY says the sector continues to attract new entrants and significant investor interest as well. In fact, almost 20 per cent of overall commercial real estate investment sales in Canada in 2015 were in retail assets, a total of more than $4.5 billion.
But what about retail sales? Are the customers still going to the malls? Are they spending?
They are, at least in most areas of the country. Nationally, retail sales grew by 2.2 per cent in 2015 and AY forecasts stronger growth of 3.4 per cent in 2016. Retail sales in January 2016 were 6.8 per cent higher than the same month one year ago. In Ontario, sales were up 9.4 per cent for the same month. More than 15 per cent of Canadians who work at outside jobs are employed in retail.
Consumers don’t necessarily judge a mall by the same criteria as its owners and investors. Toronto’s Yorkdale Shopping Centre, for example, is famous for being large—1.7 million square feet—and for having a wide selection of top-name retailers, including Canada’s first Apple store and Tesla Motors showroom.
But Yorkdale is now also the most productive mall in Canada. A mall’s productivity is measured by retail sales per square foot, and Yorkdale reached $1,610 psf in 2015. All of the top ten performing malls in Canada had retail sales of at least $994 psf, according to AY, putting them among the elite club of top-performing malls in all of North America. Five of those Canadian out-performers are in Ontario, four of them in the GTA: Yorkdale, the Eaton Centre, Royal Bank Plaza, and Square One Mississauga. The national average mall performance was $683 psf.
Many of Canada’s malls are owned by the real estate investment arms of major pension funds—Cadillac Fairview, Oxford Properties, AIMCo and Ivanhoé Cambridge. It is not surprising, therefore, to see that the retail property sector achieved the highest total annual return, 8.8 per cent, of the major asset types. The overall index return in 2015 was 8 per cent.