A review of the 2018 market combined with projections for 2019 has left even the most sophisticated participants in the retail industry puzzled over the direction of future activity. The impact of various changes in the market affected the mindset of several businesses. These changes include but are not limited to:
- government interventions – increased taxes, obligation for business to pay MSP premiums on behalf of employees, and increased minimum wage;
- higher interest rates;
- substantially higher construction costs;
- commercial property taxes that continue to increase;
- reduced inflow of international investment capital; and
- slowed residential market.
Specific to the retail sector, some retail properties in secondary markets lurched and stumbled under the weight of vacancies left by another high-profile, national-chain department store closure. Sears ceased operations of 13 stores in B.C. in January 2018, less than three years after Target Canada closed 17 B.C. stores in April, 2015.
In secondary markets, backfilling those 100,000-square-foot plus vacancies has been a challenge. Markets like Salmon Arm, Campbell River and even Kamloops and Prince George might have stable local economies and retail sales growth, but large anchor tenants in Canada are rare. They are already in most of the markets that can support them, and they expand carefully and slowly. Often, smaller markets are not of interest.
However, other shopping mall properties have experienced major reinvestment geared towards capturing new local residents in condominium towers.
In Metro Vancouver, the Target and Sears closings were considered a benefit to most mall properties, because either the stores were re-tenanted quickly with true “anchor” retailers or the leases were bought back by the landlords to make way for higher-rent-paying tenants, or major redevelopment. Guildford Town Centre, Oakridge Centre, Lansdowne Centre, Brentwood Town Cetre, Lougheed Town Centre, Metropolis at Metrotown and Richmond Centre, to name a few, are either planning or undergoing anchor or full redevelopment in the coming years. While the heyday for new mall development has passed, the era for the densification of underutilized retail (and parking space) is upon us.
Looking ahead to 2019, B.C. retailers will be eagerly anticipating the ramp-up in hiring and spending throughout the province, from the $40 billion LNG Canada terminal in Kitimat to the nearly $4 billion SkyTrain extension from Commercial Drive to Vancouver’s west side and University district.
These megaprojects, coupled with large-scale real estate development projects and B.C.’s always-robust population growth, are expected to result in a strong 2019 for retail in the province. B.C. will handily lead all provinces in annual sales growth rate, once again flirting with 8 per cent to 10 per cent growth.
The wealth effect
Retail sales in Metro Vancouver now top $40 billion per year – almost half of the province’s $85 billion. Since 2015, however, retail sales growth in the Metro region has slowed to a more sustainable 7 per cent in 2018, compared with 11.1 per cent in 2015.
The psychological effect of the slowing housing market and lower property values reduces consumers’ perceived wealth, which can reduce retail expenditures. One of the unintended effects and clearest indications of this is the growing street-front vacancies on Vancouver’s west side.
To date, Vancouver’s west side and parts of Robson Street downtown have seen prolonged vacancies, while Cambie Street, Main Street, Commercial Drive and Gastown in East Vancouver are showing strong leasing activity.
There is no better example than Vancouver’s west side, where Oakridge Centre is set to undergo one of Canada’s most ambitious urban redevelopments, while nearby street-front retailers on West 10th, West Broadway and in Kerrisdale buckle under high taxes, increasing wage costs, and soaring rents – conditions that once were overcome with growing sales.