Brief relief for retail space

While some Canadian and U.S. markets ─ notably Calgary, Edmonton, and Las Vegas ─ continue to experience high levels of construction, the overall supply of retail space is declining. The real estate industry in North America faces rising construction costs and high interest rates. As a result, retail development starts have slowed and construction timelines have lengthened, with no long-term resolution in sight. However, retailers have seen some relief in spot closures and a handful of new projects.

With the availability of retail space at historic lows in Canada and the U.S., landlords have more opportunities to drive a harder bargain and be more selective in tenant selection.

Vancouver, Toronto, and Ottawa-Gatineau are the tightest markets in North America. In Toronto, retailers are scrambling to find retail space in the city, particularly Class A opportunities. The Toronto Eaton Centre ─ a major downtown mall ─ quickly attracted tenants for its former Nordstrom space of more than 200,000 square feet, bringing in Simons, Nike, and Eataly.

In the U.S., as more tenants compete for the limited retail space, the expected closure of thousands of stores ─ including Walgreens, Family Dollar, Big Lots, and 99 Cents Only locations ─ might provide some relief.

Thanks to consumption-driven demand and population growth, the U.S. South and Southwest markets continue to see some of the strongest rent increases in the U.S.

In turn, Canadian asking rents have increased by an average of nearly 20 percent since 2019, with the strongest gains in malls, neighbourhood centres, and power centres, reflecting increased demand for suburban properties.

Retail rents in Vancouver continue to grow rapidly, outpacing the local Consumer Price Index. This keeps Vancouver the most expensive Canadian city in average rent.

Fewer retail completions in Canada are creating a ripple effect, resulting in fewer leasing opportunities for retailers seeking new space. This in turn has led to a decrease in move-ins, move-outs, and overall leasing activity. In addition, the number of large projects being completed has decreased.

However, an exception to this trend is Royalmount, a new mixed-use development in midtown Montréal. With 824,000 square feet of retail space just completed, Royalmount is the first new shopping centre of this size in Canada in nearly a decade.

Another market expected to receive a significant boost is Vancouver, particularly once major redevelopments are completed. Oakridge Park ─ scheduled to complete 850,000 square feet of retail space next year ─ aims to establish itself as a premier destination for high-end jewelry, attracting international visitors with a curated selection of luxury brands.

In the U.S., significant retail development is part of mixed-use projects, including Nashville Yards in downtown Nashville, which will add 350,000 s.f. of retail, dining, and entertainment. San Diego's Campus at Horton will bring 300,000 s.f. of retail space to downtown San Diego.