May 16, 2022
Recent financial reports from Canada’s largest commercial real estate owners suggest that retailers and employers are starting to make the move back to in-person work.

Lease signs still hang from many storefront windows, but some commercial landlords are seeing growing demand for retail space as COVID-19 subsides.

While the harshest public health restrictions lifted months ago, many businesses have been hesitant to open or expand brick-and-mortar locations after suffering bruising revenue losses during lockdowns and facing high inflation.

But recent financial reports from Canada’s largest commercial real estate owners suggest that retailers and employers are starting to make the move back to in-person work.

On Wednesday, RioCan Real Estate Investment Trust reported an occupancy rate of 97 per cent in the first quarter, up from 95.8 per cent a year earlier.

“There has been significant recognition by a lot of our tenants that they need the brick-and-mortar elements to make their whole infrastructure work,” said RioCan CEO Jonathan Gitlin on a call with analysts.

RioCan owns 204 residential, office and retail properties across Canada.

First Capital, which primarily owns shopping centres and retail space occupied by grocery stores, reported its “highest leasing volume ever” in its first quarter earnings call last week.

“It was a very busy first quarter for First Capital,” said Adam Paul, the Toronto-based company’s CEO.

The company’s renewal leasing volume increased to 838,000 square feet in the first months of 2022, up from 452,000 square feet at the end of 2021 — a “record first quarter” for the company, said chief financial officer Neil Downey.

The observations reflect a shift in shopping habits that have favoured in-person consumption while tempering the rush to e-commerce seen during strict lockdowns.

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Retail vacancies hit a multi-year high in Canada at the end of 2021, according to data compiled by CBRE, a commercial real estate services firm.

In recent months, fast-food chains and clothing brands have launched brick-and-mortar expansions while companies like Shopify and Amazon, which accelerated at the height of the pandemic and favour online shopping, have been routed in the stock market.

Oxford Properties, which holds a portfolio of shopping malls and hotels in Canada, noted that is has recently received an influx of inquiries from businesses seeking to open at Yorkdale Shopping Centre in North York and Upper Canada Mall in Newmarket.

“The strength of interest is present across a variety of retail, food and beverage, and entertainment providers with a pronounced activity in non-traditional uses such as education, furniture as well as automotive brands,” said Daniel O’Donnell, a spokesperson for the company.

The recovery is evident in areas like downtown Toronto, where companies like RioCan and Oxford own several properties, though some realtors still report difficultly attracting tenants.

Foot-traffic data from Avison Young, a commercial real estate research firm, showed that in-store shopping in Canada grew 371 per cent for local retailers compared to a year ago, when lockdowns in Ontario forced non-essential stores to rely on curbside pickup and online sales.

A retail outlook report from Colliers, released in March, forecasts that retail vacancy rates will continue to decline while rental rates are expected to stabilize.

Shawn Abramovitz, CEO of Pivotal Commercial Realty Toronto, says he has seen an influx of national retailers swoop in to lease storefront space while small businesses have hesitated to get back in the market.

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“We’re seeing the resurgence of the fried chicken chains, the burger joints, the shawarma shops. Those guys are usually swimming around,” said Abramovitz.

Critical to the decline in retail vacancies, though, is that employees return to the office, Abramovitz said.

In areas where retail vacancies are above pre-pandemic levels, nearby office spaces once occupied by full workforces are largely left empty, said Abramovitz.

“If we don’t see a resurgence in the office market, then retail vacancies are going to take longer to come back down,” said Abramovitz.

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