Retail Market Update

Retail is in a constant state of hyper-evolution. Facing economic and market-based headwinds like rising rent and online shopping, retailers have become increasingly creative and adaptable. Working closely with marketing teams, research teams, landlords, and leasing agents, retailers seek to improve the consumer experience while increasing revenue in an ever shifting marketplace.

During a recent NAIOP breakfast meeting facilitated by Mike Hodge of Avison Young, three experts, Stephen Knight, CEO and Managing Partner of Sitings; Emilie Lok, Leasing Manager for Westbank; and Derick Fluker, co-founder of Form, explored trends in the retail market while forecasting what lies ahead in 2019.

The Reality of Retail

Retail, like so many industries, is in a perpetual state of ebb and flow. Certain segments of the market become weak while others prove stronger. As storefronts are consistently opening and closing (something that’s historically never changed), Fluker noted how street-front retailers, who used to struggle in years past, are strong with larger power centres in weaker positions.

Retailers are highly aware of their need to adapt and evolve along with the shifting consumer experience.  Artizia, as Lok pointed out, are looking to have fewer stores, instead having more flagship stores - some with cafes inside. She highlighted that brands are looking to become experiential rather than transactional.  “Large anchor tenants,'' she said, “are finding small format concepts so they can have more variety while paying less rent.”

While it’s easy to think retailers parallel their American counterparts, Knight made clear that players like big box retailers do better in Canada.  “We have less competition,'' he said. “If you’re in the office products category in the states, you’ve got two or three competitors. Here, it’s down to staples and a few smaller players. We don’t face the same pressures as the Americans.”

Working with the Unknown of ‘What Lies Ahead’

Since no one, even the best, can predict what’s to come in an exponentially evolving retail market, how does one set themselves up for success?

In regards to trends to follow, it’s helpful to look to countries ahead of us, like Asia, and model those trends, according to Lok. She feels that being adaptable and flexible with one’s vision becomes crucial to succeeding in the current market. In Lok’s experience, doing your best to future proof plans will help, but some decisions are left to instinct. Sometimes you have to “follow your gut,” she said.

Balancing Loyalty and Business

Landlords and sellers have a tough balancing act. While leasing available space allows landlords control over the tenants in mixed use developments - protecting the interests of residents and fellow businesses, sadly, is not always the most lucrative choice.  More and more often, commercial spaces are being sold, rather than leased by developer and landlords.

Fluker points to the wide gap between strata values and lease rates, who he feels have little correlation to one another. Because strata values are more lucrative, Fluker shared that 25 to 45% of developers are selling their strata lots. Knight echoed this sentiment by saying that developers have the need to maximize their return.

The Bottom Line

While the retail space is forever evolving, it still remains strong. Similar to other markets, certain segments of retail strengthen while others lose steam - something unlikely to change. Landlords, developers and leasing agents are best armed by being ‘up’ on trends, diligently forecasting what lies ahead, and working to become increasingly adaptable.  

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