Yahoo Finance 'Incredible demand': Retail rents to rise in Canada amid population growth, shortage of new space
Canada’s population growth and sluggish construction have led to “incredible demand” for retail space, pushing up rents in many markets and seemingly defying indicators of consumer pessimism, according to the latest CBRE retail rent survey.
The survey, covering the first half of 2024, found retail rents had increased in 40 of 120 areas covered across the country, the highest proportion of any report it has published. Only two areas saw reductions in benchmark rent 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,” the report said.
The report details expansion across nearly all categories, with the health and wellness, grocery and discount sectors leading the way. Inflation pressures on consumers have been driving growth in the discount space, but “luxury and other high-profile domestic brands meanwhile have also been active cross-country, opening exciting new and other first-to-market flagships.”
Most people have burned through COVID savings, many are pessimistic about the economy but are still spending, and we don’t really have a logical reason for this.Alex Edmison, CBRE
High construction costs and elevated interest rates in recent years have essentially halted new projects that would offer new retail space, resulting in a pronounced shortage of supply, the report says. But even with that supply shortage factored in, CBRE senior vice-president Alex Edmison told Yahoo Finance Canada the robustness of the sector is somewhat remarkable given some measures of economic sentiment.
“Most people have burned through COVID savings, many are pessimistic about the economy but are still spending, and we don’t really have a logical reason for this,” he said. “It’s just what we are seeing in the data.”
The recent spike in population growth plays a part, Edmison notes. “Even if people tighten their belts, if there are more people, we still see growth in retail sales.”
The Toronto and Ottawa markets were among the hottest in the first half, the report says. In Ottawa, a “lack of quality inventory” has hindered the expansion plans of several companies. In Toronto, “tenants are starting to widen their search area” to areas further east and west of downtown.
The report notes that construction costs “are starting to show signs of stabilization, which could open the development pipeline once again.” But that construction would not deliver immediate new supply, leaving the current environment highly competitive.
“Retailers are being strategic, but are also having to move fast,” CBRE managing director Molly Westbrook said in a statement. “If limited retail vacancy wasn’t motivating enough, higher rental rates are expected in the months ahead.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android.
