Of all commercial real estate sectors, retail is the one most impacted by the COVID-19 pandemic. The sector, which was already undergoing a rapid evolution due to changing consumer habits, will face an acceleration of those trends in 2021. Retailers across the country faced a variety of pandemic-related impacts, including mandatory closures, reduced operating hours and minimal foot traffic. Since local economies initiated phased re-openings, government financial aid and rent relief from landlords have helped many retailers remain in operation, but these measures will not be able to continue indefinitely or save every business. On the other hand, landlords do not necessarily want vacancies in their retail assets at a time when few new tenants are in the market for space – but responses vary by retailer and location as landlords assess their portfolios strategically.
Enclosed malls and street-front retail continue to suffer but strip centres anchored by food retailers and other essential services are thriving. The pandemic has resulted in some long-term changes, including encouraging Canadians (particularly in older demographics) to take up e-commerce in greater numbers. In response, many retailers and restaurants have increased their online presence and capabilities, adding online ordering and delivery options for consumers. This has generated tremendous revenue and notoriety for food delivery services such as UberEats, Skip the Dishes and DoorDash – although raising the issue of the fees they charge to already-struggling restaurants. Underutilized retail and restaurant spaces are increasingly being used as “dark stores” to fulfil online orders and “ghost kitchens” to prepare food exclusively for delivery – alternative uses that may gain prominence in coming years. Online grocery shopping has also gained traction as major grocers have expanded their offerings to consumers, bolstering staffing levels to do so.
On the bright side, Canadian retail sales rose gradually for four consecutive months through the summer of 2020. Growth in retail sales may moderate in the fall as some regions needed to re-impose lockdown measures in response to the second wave of COVID-19 infections gripping much of the country. Despite this, growth in e-commerce has not abated. E-commerce sales’ share of total retail sales continued to increase from July to August 2020 despite retailers expanding in-person shopping in accordance with local public health measures. According to Statistics Canada, retail e-commerce sales are up almost 61% year-over-year as the pandemic has added fuel to an already-accelerating trend.
Vacancy is forecasted to increase through 2021 with leasing volumes and absorption likely to decline in most markets across the country. In markets with a high cost of living (such as Toronto and Vancouver) or elevated unemployment (such as Calgary and Edmonton), consumers have had less to spend in 2020. Canadians are also saving more and directing discretionary spending towards food and home improvements. Nevertheless, average asking rental rates are expected to decline to a greater or lesser extent during 2021 in every market, while construction activity in the sector is expected to be flat at best compared with 2020.
The uncertainty resulting from the pandemic has accelerated another trend that has been gaining momentum for several years in the sector: the repurposing of retail space and redevelopment of retail-only assets as mixed-use projects, including office and residential space along with retail. Hudson’s Bay Company, Canada’s oldest retailer, launched a division late in 2020 specifically to oversee mixed-use redevelopment of the company’s numerous real estate assets. This strategy allows landlords to unlock additional value in their retail real estate assets, maximizing the potential of the underlying land – especially for well-located malls and other large properties.
This trend may also intersect with the concept of the “15-minute neighbourhood”, where mixed-use communities provide residents with all the amenities they need to live, work and play within a 15-minute walking distance. Popular among academics and planners, the idea may gain momentum given that some of the local shopping and working resulting from COVID-19 could be harnessed to promote longer-term regeneration. Location and demographics will make the concept more viable for some areas than others – but the idea could influence redevelopment plans and have an impact on the long-term environmental impact of these communities in the years to come.
Since local economies initiated phased re-openings, government financial aid and rent relief from landlords have helped many retailers remain in operation, but these measures will not be able to continue indefinitely or save every business.
