Amid high demand and supply-deprived market, Canadian retail rents have been rising!
Canada’s rapid population growth and slow pace of construction have fueled a high demand for retail space, causing rents to rise in many areas despite signs of consumer caution, according to the latest CBRE retail rent survey.
The survey, which covers the first half of 2024, revealed that retail rents have increased in 40 out of 120 regions across the country – the highest percentage recorded in any of CBRE’s reports. Only two areas saw a decline in prices.
“Market conditions continue to push up rental rates across the board with no single format type being left behind amidst incredible demand and the race for space”, according to the report.
The report highlights expansion in almost all retail categories, especially in the health and wellness, grocery, and discount sectors. Although inflation has pushed more consumers towards discount retailers, luxury and well-known domestic brands have also been expanding, opening new and unique flagship stores nationwide.
Recent years have seen high construction costs and increased interest rates, which have essentially stalled new projects that would create additional retail space. This has led to a significant shortage of available retail properties. Despite this, CBRE senior vice-president Alex Edmison told Yahoo Finance Canada that the retail sector’s strength is notable, given the current economic sentiment.
According to the report, Toronto and Ottawa were among the most competitive markets in the first half of the year. In Ottawa, a “lack of quality inventory” has slowed the expansion plans of several companies. In Toronto, “tenants are starting to widen their search area to include nodes farther outside traditional core markets to sites with higher levels of intensification”, the report noted.
While the report mentions that construction costs are “starting to show signs of stabilization, which could open the development pipeline once again”, new developments are unlikely to immediately alleviate the current shortage, keeping the market highly competitive.
“Retailers are being strategic, but are also having to move fast. If limited retail vacancy wasn’t motivating enough, higher rental rates are expected in the months ahead”, CBRE managing director Molly Westbrook said in a statement.