Canadian Retail Rental Rates Rise Amid High Demand: CBRE

According to CBRE’s H1 2024 Retail Rent Survey, market conditions continue to push Canadian retail rental rates up. The report, which is a look into retail trends and rents for 11 Canadian markets, revealed that marketplace is in a supply-deprived environment, with new construction activity at historically low levels in multiple cities.

High construction costs in recent years along with high interest rates have played a crucial role in reducing supply, shelving projects that were not already under construction. However, these costs are beginning to show signs of stabilization, which could once again open the development pipeline.

Despite this, retailer demand remains high and has been supported by considerable population growth.

The survey revealed that luxury and other high-profile domestic brands are expanding across the country and opening first-to-market flagships. The health and wellness sector has also been in demand, along with grocery, and discount. While all of these have been in expansion mode over the last six months, inflation is driving growth to discount retailers.

“Retailers are being strategic, but are also having to move fast,” says CBRE managing director Molly Westbrook, who heads the National Retail Group. “If limited retail vacancy wasn’t motivating enough, higher rental rates are expected in the months ahead.”

CBRE noted that retail rent appreciation continues, with 40 of the 120 areas included in this survey experiencing rent increases in H1. Cities with the greatest number of retail rental rate increases have also shifted to the east, with Toronto and Ottawa reporting rising rents across seven formats and key urban areas.

In terms of power centres, they experienced rising rents in seven of 11 markets. Cities with increases in this format saw ranges raise by an average of 10 per cent from year-end 2023.

A total of six markets saw retail rent increases across one or more key urban areas.

The report noted that the cost of construction continues to be a limiting factor across many markets, which will keep vacancy tight, and rents elevated.

The most active retailers and growing segments for 2024 include luxury and apparel, grocery, food and beverage, and service/medical.

Some of the notable retail trends to watch for in markets across Canada include the following.

In Toronto, quality retail space is in short supply and rents continue to appreciate while Victoria’s downtown market continues to experience softening demand with long-standing retailers shutting down on Johnson Street and restaurants closing.

Migration into Alberta has driven demand in Calgary from retailers and service providers for suburban-style shopping centres in the city, however, there is a shortage of options for them which has caused rents to continue increasing.

In Winnipeg, new supply has been limited recently, but retail developments under construction include Shindico’s Align Winnipeg, Private Pension Partners’ The Zu, and Whiteland’s Polaris Place. Qualico Properties began development on Sage Creek Village East.