Technology and consumer shopping preferences are factors often discussed when looking at today’s retail landscape. Topics such as ecommerce purchasing, the impact major tenants have on development plans and mixed-use projects, among other trends, are all influences affecting the future of retailing.
These were just a few Canadian retail trends that John Crombie, senior vice-president of retail leasing for Triovest Realty Advisors, proposed to an industry panel at the 2015 Land and Development Conference in Toronto earlier this month.
During the retail seminar, redevelopment was positioned as the ‘new development.’ This is happening, for instance, with the construction of residential apartments on existing retail. RioCan recently announced it would be spending about $6-billion on 19,000 rental units at some of its retail sites. The question is, why?
Jordon Robins, senior vice-president of planning and development for RioCan, targeted a scarcity of land as the main culprit. Mixed-use projects are on the rise, and existing assets are being redeveloped because density is needed to rationalize high land prices.
Tom Smith, senior vice-president of development and leasing for SmartCentres, pointed out that kind of redevelopment is nothing new. Back in the 1990s, Loblaws added high density residential on retail sites as an acquisition strategy to purchase expensive land in urban areas and offset land cost. Also, in 2000, as Cadillac Fairview reconstructed Don Mills shopping centre, the company added 1000 residential units. However, Smith says we are now seeing this trend in urban locations as the population migrates to limited land.
Indeed, as Crombie noted, there is a need for densification and the examination of underutilized retail to help maximize the value of real estate.
Big box retailers and theme malls
Are big box retailers endangered? Robins says that RioCan is currently building two big centres in Calgary, and this development points to automobile-focused areas as a driver of such assets. He also notes that square footage reduced in big box stores is part of a natural evolution, seen in other retailers like Walmart and Loblaws over the past several years.
Colin Baryliuk, managing director of investments at KingSett Capital, said retailers are focused more on efficiencies and maximizing the selling area. They understand that a big store doesn’t necessarily amount to big sales. “The centres will always serve different needs,” he says. “Regional shopping centres attract high fashion, and successful mall managers know what to bring to the mall to keep driving sales and attracting customers.”
Alan Dillabough, vice-president of development and construction at Primaris Management, says his company has transformed some enclosed shopping malls into plazas to be more cost-effective and help retailers to be more efficient and exist at lower sales thresholds. “If they can shrink the store a little bit and eliminate rent and overhead, sales don’t necessarily fall in proportion.”
The panel noted that the best malls continue to expand, while older malls struggle to attract new tenants, unable to increase rental rates in a meaningful way.
In respect to why some centres thrive more, Smith raised the concept of theme malls. These assets are able to establish themselves in urban markets and are protected from competition due to the land use system. As these exisiting nodes are established, they expand and become stronger, and, in terms of investment strategy, there is less risk without rezoning. Those assets grow and attract more retailers and reinforce their fashion segment, which is the segment that can afford to pay high rent.
On the other hand B- and C-class assets are shifting away from fashion. Sales productivity, along with the ability to pay occupancy costs, is going down. Meanwhile, costs of energy and maintenance are rising. “A shift has to happen in merchandizing,” said Smith. These centres are moving more towards service and away from fashion. While B-class centres can maintain fashion, others will have to reposition themselves or end up being sold for other purposes. There is still a huge demographic that isn’t going to Saks or similar places and are, in fact, attracted to these malls.
New anchors competing for shopping centre dollars
“New anchors are not traditional big anchor at one end and big anchor at the other end,” said Dillabough. “Now, it’s all about destination retail and drawing people to your centre, a destination where people want to go for that tenant.”
Brad Keast, vice-president of development at Osmington Inc., says the evolution of food offerings in malls has advanced. “If you look at food as an anchor, instead of food as the reason to keep people in the centre for a longer time, and if you’re getting the food right, people will come to the centre for the food,” he says, “That’s driving more traffic.”
“In general, food is future proof,” added Smith.
Shopping centres should also address consumers’ need for entertainment, a popular addition in redevelopments.
“It’s not a brand new trend,” noted Keast, who suggested hard-to-lease areas consider a community centre aspect, where it could develop community-based opportunities, such as sports recreation or entertainment, to bring in traffic. Large anchors are paying huge rents, but there may be chances to repurpose dead space.
In what was called a “decade old conversation,” Dillabough doesn’t forsee the demise of stores, as square footage and sales rise. “There’s always going to be a tactile experience; people want to touch and see and be around other people,” he said. “The movie theatre business didn’t die despite all these great TV’s at home. People still pay for coffee and go to restaurants. Ecommerce is not the most efficient way in terms of bringing every single item to a house. There’s a reason we have shopping centres, an economic reality.”