Canada might lag behind the U.S. in terms of shopping center trends — many of the malls there are only now starting to devote more space to food and beverage — but the industry’s solid fundamentals and sane building pace have kept it in good stead.
That, and the fact that Canadian consumers still flock to malls. With a population of only 36 million, Canada’s shopping centers welcomed 134 million visitors last year.
While American malls are being hammered by retail bankruptcies and store closures — an estimated 8,000 units are expected go dark this year — the Canadian market hasn’t had a wave of store closings since January 2015 when Target Canada shuttered all 133 of its units after a failed attempt to enter the market. There were some signs of worry recently, however, as Sears Canada issues an ongoing concern warning.
“Malls in 2016 made space for Saks Fifth Avenue,” Steven Alikakos, president of RKF’s Canada office and broker of record. “They were seeing this slowdown in the U.S., but it definitely didn’t hit us. Developers started adding space. What prompted them to build was that many more U.S. retailers said they were coming to Canada.”
Then, the Canadian dollar started losing strength against the American dollar. “With our dollar falling, many U.S. retailers that planned to come north decided to stay home,” Alikakos said. “That’s been a troubling point for larger Canadian landlords. We saw so much interest from newer brands in coming north.”
Despite the decline in the Canadian dollar, Saks Fifth Avenue has opened two full line stores and nine Off 5th units north of the border. Nordstrom operates five full-line stores with six scheduled to open at CF Sherway Gardens in Toronto in September.
“Nordstrom and Saks are being welcomed,” Alikakos said. “They’ve added a little bit of zing to centers that were already exciting.” He added there’s room for those chains to grow with “a runway of a couple of years.”
“The biggest savior for Canadian landlords and retailers is we don’t have as much retail space as the U.S.,” Alikakos said.
Per capita shopping center space in Canada is 16 square feet, while in the U.S., there’s 26 square feet of retail space for every man, woman and child. Of course, the U.S. population at 323 million, is almost ten times as large as Canada’s 36 million, which is about the same as that of California.
“There are no serious vacancy problems in shopping centers, “Alikakos said. “Our malls are full and have great traffic.”
Canadian malls are more productive, with sales of $550 per square foot, versus U.S. malls, which did about $450 per square foot in sales in 2016, according to the Retail Council of America.
“The Canadian market has enjoyed some great growth,” said Brad Jones, head of retail at Oxford Properties. “Were not overstored to the extent of America.”
Jones said Oxford since 2010 has invested over 2 billion Canadian dollars to redevelop and renovate existing properties.
“We’re trying to give our customers the best experience possible with retailers that fit their lifestyle,” Jones said. “We have industry-leading common areas and amenities. Food, beverage and entertainment is exploding. We’re significantly underindexed in those areas in Canada. We’re opening the first Cheesecake Factory in the country at Yorkdale in Toronto. We’re building a couple of new Mills-type shopping centers in British Columbia where one of our key focuses is food and beverage.”
Jones said Oxford has been spending a lot of time in Europe and Asia looking for new concepts to bring to Canada. “Takes a long time to find retail concepts and make sure they have a business model that will perform in Canada,” he said, ticking off success stories such as Reiss, Mountain Warehouse, Sandro, Maje, Uniqlo, Muji and Ted Baker. Oxford’s also done well with luxury brands such as Versace, Cartier, Ferragamo and Longchamp, Jones said.
Two Oxford Properties — Square One in Mississauga, Ontario, and Yorkdale in Toronto — each do more than 1 billion Canadian in sales. The centers’ food, beverage and entertainment component accounts for 9 percent of total square footage and Oxford plans to raise it “upward of 30 percent, like in Europe and Dubai,” Jones said.
The five Sears stores in Oxford’s portfolio are being viewed as opportunities for bringing more restaurants.
“Food is the new anchor, and gyms are the new food,” Claude Sirois, president of retail at Ivanhoé Cambridge said. “The trend in Canada is to have food and beverage account for 10 percent of all leasable space. That number will grow to 12 to 15 percent.”
“We’re losing retail space and bringing new experiences,” said Sirois. “We had to absorb a lot of the Target square footage. Luckily, there’s a new breed of stores, e-tailers that are opening.”
Ivanhoé Cambridge’s philosophy of what defines a mall has changed. “Before, we were a collection of buildings with products inside,” Sirois said. “Now, we want to be a collection of experiences.”
Fortress, or A centers, and outlet malls are getting stronger, but lesser shopping centers are under pressure to redefine themselves.
Ivanhoe Cambridge recently unveiled a 300,000-square-foot outlet mall with 30 first-to-the-market brands in Winnipeg. “The market penetration has had an effect on our sales numbers and productivity,” Sirois said. “Our anchors are smaller. We do about $800 in sales per square foot in our portfolio of fashion and outlet centers.”
With Canadian shopping centers thriving, there’s some concern about high street retail. “The vacancies are beginning to occur in a more troubling way on the streets after rents started rising,” Alikakos said.