Battered by COVID 19, cool weather could be turning point for mall owners
TORONTO — Autumn’s cooler weather will be a key test for retail landlords — particularly at shopping malls, which were ailing before COVID-19 and are now reckoning with the aftermath.
“The enclosed malls that don’t have the essential retailers, they were more dramatically affected (by COVID-19 lockdowns),” says Jane Domenico, senior vice-president and national lead at Colliers International in Toronto.
“We’re seeing traffic improve. It’s more need-based visits, rather than the `Let’s go to the mall on Saturday’ entertainment visits. Now, as the weather gets colder, I expect to see traffic improve on those sort of entertainment-type visits, especially with the cinemas open.”
The decline in mall traffic after COVID-19 is yet another sign that malls — once buzzing social hubs — have fallen from shoppers’ good graces.
Domenico recalls a property she had in 1997 near Ottawa, where the foot traffic in the mall would exceed the population of the community each month.
“We had millions and millions of visitors a year,” says Domenico.
After a slew of retailers filed for creditor protection this year — including Aldo Group, Reitmans and Frank and Oak — Canadians may be wondering who will pay the rent for those storefronts. It all comes after two Toronto shopping malls reported temporary store closures in late summer due to COVID-19 infections.
A Canadian commercial real estate report by Jones Lang LaSalle IP, Inc. estimates retail investments in the first half of this year were at their lowest in almost a decade.
“The implications (of COVID-19) on the use of real estate have been momentous,” said JLL’s analysts in the report. “The widespread shift to online shopping is increasingly moving retail footprint from the showroom to the warehouse … Where possible, retailers are converting brick-and-mortar locations to last-mile fulfillment centres, also known as ‘dark stores.”’
In July, RioCan REIT emphasized that it would continue to move away from brick-and-mortar fashion and apparel retailers in favour of grocery stores and pharmacies. The real estate investment trust, which counts Canadian Tire Corp., Loblaw Cos. Ltd., TJX Companies, Inc. and Cineplex among its tenants, singled out fashion retailers as sources of “bad debt,” and said tenants are instead pushing for spaces for storing inventory for online orders.
Ontario Teachers’ Pension Plan — which owns Cadillac Fairview — also told investors at the end of August that it was going to “rebalance the portfolio” away from hard-hit sectors such as retail real estate. Cominar REIT, owner of shopping centres such as Quebec’s Centre Laval, has announced a “strategic review.”
Online shopping, on the other hand, has boomed, and the impact is being felt in real estate. Statistics Canada estimated that retail e-commerce sales nearly doubled from February to May, even as total retail sales fell 17.9 per cent. In July, the leading building permit issued was for a $474-million commercial permit issued in Ottawa — to build a complex that will house an Amazon distribution centre.
There are some reasons to be optimistic, says Domenico. For one, consumer confidence is generally rebounding ahead of the Halloween shopping season. Shopping centres that include a combination of “necessity” retailers with other big-box brands (such as a strip of a grocery store, Home Depot and Best Buy) have hung on during the COVID-19 pandemic. Shoppers are showing more interest in small and local “high street” shops, Domenico says.
Domenico says malls and shopping centres have a chance to pivot, particularly if they can introduce mixed-use real estate into their plazas, such as apartments, condos, senior living or office towers.
She says that for cities that are farther away from distribution centers it will still be more convenient to drop by nearby shops than order online.
This report by the Canadian Press was first published Sept. 16, 2020.