After a downward trend in the previous two years, the retail market in Alberta seems to be making a comeback.
According to a report released by Colliers International, total retail sales in Alberta in 2016 were $75 billion, making it the only Canadian province to experience negative sales growth (-1.4 per cent) that year.
The year before, Alberta experienced negative sales growth of over 3 per cent.
Despite the two-year dip, Alberta has started off 2017 strong with a 7.2 per cent growth rate in Q1, the third-largest of all the provinces, prompting hope for the sector.
“Alberta as a whole is on the rebound,” said James Smerdon, vice president and director of retail consulting at Colliers. “I’m not sure that a growth rate of over 7 per cent will be sustained for the whole year, but Q1 is certainly showing some promise.”
Consulting management company Altus Group recently released its Edmonton Flash Report, which indicated a strong retail investment increase of $537 million in 2016, signalling sector outlook is positive despite the slower growth in sales.
“Generally, in Edmonton, we’ve been seeing that demand for retail assets and retail land has remained quite strong despite the slowdown of the economy,” said Matthew Boukall, senior director of Altus Group.
Spending in the “Big Four” remains high, with the four provinces (Alberta, British Columbia, Quebec and Ontario) accounting for 86 per cent of Canada’s national retail sales.
“We expect retail to remain strong; we have been watching that consumer spending has remained among the highest in the country, in the Alberta market but specifically Edmonton,” said Boukall.
Tale of two cities
There are a number of factors that make Calgary and Edmonton comparatively different markets, the most obvious being Edmonton’s well-known retail tourist draw.
“The historical trend is that retail sales in Edmonton have always been strong, partially, predicated on West Edmonton Mall being located in Edmonton, which is a huge drive of spending.”
But the noted stability of Edmonton’s retail market over Calgary is the product of a number of other factors.
“Calgary’s market is more prone to economic cycles,” said Smerdon. “Edmonton has a huge hinterland market that extends beyond Alberta’s borders in the north, east, and west that tends to moderate the boom-bust cycles,” said Smerdon.
Smerdon believes Edmonton’s location as a regional centre to northern Alberta and northern B.C. make it a more attractive option for retailers, along with the type of consumers in the area.
“Edmonton is more blue-collar and more union and government employment. In general, Edmonton never sees the higher highs or the lower lows that Calgary does.”
Additionally, regional lease rates in Edmonton are more affordable than in Calgary, according to the Colliers report.
The regional lease rate of a 4,000-square-foot space ranges from $45 to $60 per square foot and has a vacancy rate between 1 per cent and 3 per cent.
In Calgary, the regional lease rate of a 4,000-square-foot unit ranges from $85 to $200 per square foot, and has a vacancy rate between 2 per cent and 3 per cent.
“Retail and industrial will likely remain the bright spots in the Edmonton market, and our outlook for both, both from an investment and an appetite to acquire assets, is very positive,” said Boukall.
Sears a concern
One impending rut in the road for retail landlords is the future of struggling department store chain Sears Canada Inc., which has three outlets in each city.
Nevertheless, the Sears challenge is not expected to have an impact on investment volumes, and the general outlook for retail in Alberta’s big cities remains significantly upbeat, Smerdon said.