CBRE Limited
Canadian Retail
Global Research and Consulting www.cbre.ca/research
Year-End 2011
WITH SUPPLY IN CHECK, RETAIL MARKET FLOURISHES DESPITE HEADWINDS By Ricky Hernden Senior Research Analyst, Canada
SUMMARY Foreign retailers have been the driving force in the
Canadian retail market in recent years, but domestic forces are poised to take precedence in 2012. Retail sales growth was surprisingly strong during the fall and vacancy rates are low across the country; however, there was minimal new supply in 2011.
That is not to say that there is a lack of product in the pipeline. There is the potential for 8.5 million SF of new supply to be delivered in 2012 if all of the projects get underway. In order to reach this amount, the economic outlook will have to stabilize. This will facilitate project financing and encourage new entrants and existing players to anchor new projects. Much like recent retail
MARKET OVERVIEW The Canadian retail market continues to appeal to foreign retailers and sales have been robust, but the outlook for 2012 is being complicated by a number of global and domestic issues. Marshalls has rolled out in Ontario and J.Crew opened a second location in Calgary, while Calvin Klein, Van Heusen, Express, Zumiez and David’s Bridal all opened locations in Canada in 2011.
Retail sales
sales growth, development activity is most robust in Western Canada where lower unemployment, higher disposable incomes, and population growth projections are most favourable for retailers.
The appeal of these
markets is evidenced by the 8.7 million SF that is planned with no precise timeline for delivery in the Calgary market alone.
exceeded expectations in the fall by rising for three
Overall, Canadian retail fundamentals are strong, but the
consecutive months including a 1.0% (m/m) increase in
market faces headwinds that should not be ignored. The
October.
Sales gains have been broad based, with
low amount of development activity suggests that
Western provinces recording the most significant gains.
developers and lenders are aware of the challenges that
Overall, market recorded a significant drop in vacancy
exist. The household debt-to-income ratio hit a high of
compared to 2012 and the lack of space, especially in
153.0 per cent in the third quarter of 2011, a level which
desirable locations, has supported rent growth for most
has proven to be problematic for other developed
format types.
nations. Wage growth is lagging far behind the pace of
Despite the strong sales performance and interest in the Canadian market, there has been a steady decrease in development activity.
Only 3.6 million SF of new retail
space was completed in 2011, which is the lowest amount since 2005. The strength of the Canadian retail market has long been predicated upon conservative lending and development practices.
This approach served us well
during the uncertainty of 2011 and will be necessary to weather the challenges that lie ahead in 2012. Retailers are often unable to find space in popular, well located shopping centres, but this has not spurred an increase in development.
inflation, which will squeeze spending even if a correction in house prices, which has been predicted by many analysts, does not come to fruition. Canadian consumers have not faced these sort of challenges in well over a decade. As a result, the recent pace of spending is likely unsustainable.
A restrained approach to development
will be key as consumers adjust to changing conditions. In 2012, the retailers are likely to target areas where local dynamics are likely to support sustainable sales growth. Construction
activity
and
interest
from
prospective
retailers indicates that Western Canada will lead the market in this context.
© 2012 CBRE Limited
Economic Trends
Businesses and consumers were bombarded with
1.0%
Canadian Retail MarketView
ECONOMIC TRENDS
Employment % Change GDP % Change
news of significant downside risks to global economic
0.0%
3Q11
before an interest rate hike comes into effect if economic growth and job creation does not pick up.
National Retail Sales
including food, clothing, and jewelry. As for the all important holiday season, Moneris Solutions reported that fourth quarter debit card and credit card purchases rose 5.8% (y/y). Canadians are spending at healthy levels, but one has to wonder how the
4% 0% -4% -8%
-12%
pace of spending and run up of personal debt can continue.
10/1/2011
(m/m) as demand grew for a broad range of goods
National Retail Sales
8%
1/1/2008
data from October indicates that sales rose 1.0%
Y/Y % Change (Seasonally Adjusted)
fell compared to the prior month. The most recent
3Q12*
12%
challenges to economic growth at home and abroad. There were only two months in 2011 in which sales
2Q12*
7/1/2011
Canadian retail sales were surprisingly strong given
1Q12*
4/1/2011
NATIONAL RETAIL SALES
4Q11*
Source: Conference Board of Canada * Forecasted
1/1/2011
Retail sales could suffer long
10/1/2010
end 2011 at 7.5%.
7/1/2010
October and unemployment rose for three months to
0.2%
4/1/2010
Domestic Product (GDP) growth was nominal in
1/1/2010
appears to have challenges in store as Gross
0.4%
10/1/2009
repayment needs to be a priority. The year ahead
7/1/2009
(BoC) continues to warn Canadians that debt
0.6%
4/1/2009
financed by credit cards and the Bank of Canada
1/1/2009
Much of that spending was
10/1/2008
consumer confidence.
0.8%
7/1/2008
despite volatility in the equity markets and low
4/1/2008
growth; however, Canadians continued to spend
Source: Statistics Canada
MALL SALES PRODUCTIVITY While retail sales were relatively robust throughout
Mall Sales Productivity
Mall Sale Growth
12%
the year, mall sales reveal more volatility in spending habits. In August, sales productivity fell to $563.00
Canada will lead sales growth going forward.
Source: ICSC
Page 2 © 2012 CBRE Limited
Jul-11
Jan-11
Mall Sales Growth (S.A.)
Year –End 2011
news during the summer and suggests that Western
Jul-10
spending habits were impacted by global economic
-8% Jan-10
mall sales data also reflects the fact that Canadian
Jul-09
spurred by foreign retailers entering the market. The
-4%
Jan-09
from years of reinvestment and tenant reorganization
Jul-08
high, respectively in October. Malls are benefitting
0%
Jan-08
where sales reached an all-time-high and six-month
Jul-07
largely due to activity in British Columbia and Alberta
4%
Jan-07
time high of $606.00 psf in October. The surge was
8% Mall Sales (Y/Y)
psf, the low for the year, before rebounding to an all-
government officials urged consumers to pay down their debt.
Personal disposable income per capita
fell 0.4% (q/q) in the third quarter and is now at lows for the year. Disposable income has been squeezed by lackluster wage growth and rising inflation. Food and gasoline have led the way with costs rising 4.8%
8.0%
$30,000
6.0%
$29,000
4.0%
$28,000
2.0%
$27,000
0.0% 3Q10
(y/y) and 13.5% (y/y), respectively in November. This
4Q10
1Q11
2Q11
Personal Savings Rate (%)
make purchases at a time when the BoC and
Disposable Income Per Capita
have been robust. Canadians saved less in order to
$31,000
Canadian Retail MarketView
quarter of 2011, which is not surprising given the fact that wage growth has been weak and retail sales
Personal Savings Rate Personal Disposable Income Per Capita
Disposable Income
DISPOSABLE INCOME The personal savings rate decreased in the third
3Q11
Source: Conference Board of Canada Statistics Canada
is another reason why credit cards are being used more frequently.
Retail Under Construction 2.5
Work
8.7 million SF of space is planned. Even with the
0.5 0.0
lack of development in Calgary, Western Canada has 6.1 million SF under construction compared to
Halifax
Calgary
continues to lag behind in terms of construction, but
Montreal
be built in that market in some time.
1.0
Ottawa
Quartier Dix30 development, the most new space to
1.5
Toronto
Montreal will have 700,000 SF of space added to the
Winnipeg
1.2 million SF scheduled for delivery in 2014.
2.0
Vancouver
Tuxedo development in Winnipeg, with the remaining
SF (Millions)
continues on the IKEA portion of the Seasons of
Edmonton
unchanged compared to mid-year 2011.
SF Under Construction
3.0
construction across the country, which is relatively
Calgary
RETAIL UNDER CONSTRUCTION Over 9.5 million SF of retail space is under
3.4 million SF in Eastern Canada. SCHEDULED DELIVERY OF SPACE
Scheduled Delivery of Space (SF)
Significant attention was paid to new tenants in the
2011
H1 2012*
H2 2012*
Vancouver
690,000
112,760
592,000
Calgary
326,800
310,245
370,000
Edmonton
677,000
587,000
1,764,706
Winnipeg
7,000
0
818,000
space could be delivered in 2012, which would be
Toronto
597,486
501,000
535,000
close to the 2009 high of 9.8 million SF. In order to
Ottawa
595,000
722,500
838,000
reach the 8.5 million SF of new supply in 2012, a
Montreal
395,700
0
1,200,000
2012. Lingering economic uncertainty may not allow
Halifax
321,500
25,000
150,000
that to happen, but there is likely to be an increase in
Total
3,610,486
2,258,505
6,267,706
market, but it was a lackluster year in terms of new supply.
A mere 3.6 million SF was delivered in
2011, down from 4.8 million in 2010.
Many
projects have had construction start dates and delivery timelines pushed back in response to economic uncertainty. As it stands, 8.5 million SF of
number of projects will have to get underway early in
Source: CBRE Limited CBRE EA/Dodge Pipeline Canadian Directory of Shopping Centres
* Projected
Page 3 © 2012 CBRE Limited
Year –End 2011
new supply in 2012 for the first time in three years.
Project
Owner
Location
SF
Target Completion Date
Seasons of Tuxedo
Fairweather Properties Inc. & IKEA Canada
Winnipeg, MB
1,500,000
2014 Q4
Quartier Dix 30 Phase III
RioCan REIT
Montreal, QC
700,000
2012 Q4
Sherwood Park, AB
600,000
2012 Q4
Emerald Hills Shopping Centre WAM Development Group The Stockyards
CPP Investment Board
Toronto, ON
600,000
2013 Q2
High Street
Shape Properties Corp.
Abbotsford, BC
600,000
2013 Q2
Canadian Retail MarketView
MAJOR RETAIL CONSTRUCTION PROJECTS
SIGNIFICANT RETAIL SALE TRANSACTIONS Purchaser Sun Life Assurance Co. of Canada
Price
SF
Transaction Date
$148,000,000
Property 20159 88th Avenue & 20090 91A Avenue, Langley, BC
317,443
October 2011
First Capital Realty Inc.
$108,000,000
Hazelton Lanes, Toronto, ON
204,865
October 2011
Redcliff Realty Management Inc.
$84,000,000
Taunton Gardens Power Centre, Whitby, ON
559,184
September 2011
First Capital Realty Inc.
$83,750,000
1 Meadowlark Park Shopping Centre, Edmonton, AB
306,174
July 2011
Shape Properties Corp. & Deerfoot Equities Inc.
$78,000,000
Deerfoot Mall, Calgary, AB
623,210
July 2011
SIGNIFICANT RETAIL LEASE TRANSACTIONS Lessee
Location
SF
Retail Format
Bed Bath & Beyond
Park Place, Barrie, ON
28,300
Power Centre
Urban Outfitters
2130 de la Montagne, Montreal, QC
11,395
Street Front
Van Heusen
Heartland Town Centre, Mississauga, ON
6,926
Power Centre
Calvin Klein
Marché Central, Montreal, QC
6,869
Power Centre
Pier 1 Imports
Dartmouth Crossing, Dartmouth, NS
8,067
Power Centre
FOR MORE INFORMATION PLEASE CONTACT: Ricky Hernden Senior Research Analyst, Canada 416.815.2307
[email protected]
Page 4
Year –End 2011
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