Mall boom fuelled by the tastes of Canada’s wealthiest

Luxury retailers still heading for Canada

While big box retailers like Target have struggled to get a foothold in Canadian markets, demand for luxury retailers is strong and fuelling massive expansion projects at shopping malls across the country.

According to research by commercial real estate company CBRE Group, more luxury retailers are predicted to arrive in Canada, albeit at a more moderate pace compared to the flurry of activity seen in the last three years.

The aftermath of the 2008 financial crisis and recession spurred a boom in retail development with foreign retailers, primarily American ones, turning their sights to Canada and construction hasn’t kept up with demand.

There is little to no vacancy in highly sought after shopping centres and neighbourhoods, according to CBRE’s head researcher Ross Moore.

“We just don’t have empty retail to speak of. Across the country malls are generally full. If you’re a Spanish or Italian or U.S. retailer, you are going to be put off by that. Supply is the key. Until we build more that’s going to be a challenge.”

The study, which measured the number and type of retailers that set up shop in 2013, found that luxury and high-end fashion brands constitute the majority of new arrivals in Canada.

Newcomers in the jewellery, designer fashion and accessories categories are driving the demand for additional retail space.

In the cities, where most of Canada’s top income earners reside, construction cranes are busy piecing together the new extensions: In Vancouver, the Pacific and Oakridge Centres are getting bigger (adding 578,000-square-feet and 373,000-square-feet respectively); Calgary’s Chinook Centre is expanding (140,000-square-feet) as well as Ottawa’s Rideau Centre (230,000-square-feet).

In Toronto, top-tier malls Yorkdale and Sherway Gardens are simultaneously undergoing multi-million dollar expansions to accommodate a new anchor tenant, the upscale U.S. department store Nordstrom.

For Yorkdale, it’s the second expansion in four years. In 2012, the mall underwent a $220-million renovation, adding 145,000-square-feet to its footprint. The new wing, set to open in 2016, will add 298,000-square-feet.

Claire Santamaria, Yorkdale’s general manager, says the mall’s location at the edge of the city means there’s ample space to grow.

“We have the real estate to offer and we’re able to create the units and the co-tenancies that they like and that’s the advantage of having a new development project. We’re creating a retail environment for retailers to be successful,” says Santamaria.

Moore predicts that malls in major markets will keep seeking opportunities to expand, but construction will level off to a more steady pace in coming years as developers and supply chains need time to adjust to the influx of brands.

He adds that shopping centres in major urban centres focused on becoming retail “destinations” will continue to court niche luxury boutiques by reconfiguring existing space once occupied by retailers like Sears Canada, which shuttered several of its flagship stores this year, including its locations in the Eaton Centre and Yorkdale.

While stagnant wages, inflation and consumer debt have kept many shoppers just browsing, the appetite of well-heeled shoppers for luxury goods has been healthier.

“Certain income bands continue to grow more robustly than the rest. If you’re a luxury retailer you don’t care if sales have been growing by 1%, you’re only interested in the top 2% of the population and that group’s doing fairly well by and large,” says Moore.

Canadian malls also tend to be more productive than American ones, with sales per square foot averaging C$600 versus C$450 in the U.S.

Tourism dollars have also made an impact on sales.

“Certainly on the West Coast, Vancouver in particular, Asian tourism is very important. Luxury retailers aren’t there to service Vancouverites they’re in Vancouver to serve primarily Asian tourists and that is who their market,” says Moore.

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