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Norma Walton Talks: Retail Real Estate Predictions

Over the past two years, I have watched with interest and some consternation as more major retailers than I have fingers and toes have gone into receivership or bankruptcy.  COVID has accelerated trends that were already happening in the marketplace.  Four of those trends bear highlighting.

Apparel retailers are in trouble.  Any apparel retailer with significant debt will fail in the next two years.  COVID has caused those stores to be completely closed for the past three months.  Now that they are permitted to re-open, the restrictions being placed upon them coupled with the general anxiety amongst a large portion of the population about venturing outside of their homes will work together to significantly reduce their sales.  This reduction in revenue will leave them unable to cover their debts.  That means receivership or bankruptcy.

Even those apparel retailers who don’t have a lot of debt will be forced to dramatically reduce their real estate footprint and significantly increase their online sales and web presence.  That trend is unstoppable.  Stores will be smaller and more reliant upon online sales in the future.  They will have to push their brand online and ensure their websites can accommodate and promote online sales.

That rolls into my third prediction, which is that warehousing space will become more expensive and warehouse fulfillment centres will boom over the next two years.  Any landlords who have warehouse space available will be able to ask more per square foot because as retailers reduce their real estate footprint, they will need a place to receive, store and ship out their clothing.   Warehouse fulfillment and distribution centres will be in demand given the shift to online shopping.

The final prediction concerns malls.  Malls will have to diversify their sources of income and their revenues to survive going forward.  They will not be able to rely solely upon retailers.  This trend has already started.  The Shops of Don Mills has ringed the mall with residential towers, providing built-in shoppers.  The retailers there still struggle but the restaurants, movie theatres, grocery stores and drug stores are thriving.  Bayview Village and Yorkdale malls are trying to replicate that trend, adding significant residential density to the mall and adding more restaurants and entertainment centres to service the residents they propose to move in.  Malls in Canada will need to move in that direction to survive.

Those are my four retail real estate predictions for Canada for the next two years.  I will continue to watch with interest to see what comes to pass.